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1. What types of bankruptcy are available?
There are five chapters of bankruptcy: Chapters 7, 9, 11, 12, and 13 (Chapter
15 was repealed). Chapter 9 is for municipalities only, Chapter 11 is a
business reorganization chapter typically only filed by sizeable companies, and
Chapter 12 is only for farmers. Chapter 15 was for cross-border cases but has
been repealed. Therefore, most people who file bankruptcy file either Chapter
7, more commonly known as “liquidation” or “total bankruptcy”, or Chapter 13,
more commonly known as “reorganization” or a “wage earner plan.”
2. What is the difference between Chapter 7 and Chapter 13?
There are several differences between Chapter 7 and Chapter 13, and a more
thorough discussion can be found in the “Chapter 7 vs. Chapter 13” link, but
basically Chapter 7 is a relatively quick process in which one discharges his or
her debts that are dischargeable, whereas one who files a Chapter 13 makes
payments for usually 60 months and pays back a portion of what he or she
owes, depending on what he or she can afford to repay, and the portion of the
debt that is not paid back is discharged.
Based on this simplistic explanation, it sounds as if everyone would want to file
a Chapter 7 rather than a Chapter 13. However, this is not necessarily the
case since Chapter 13 has several complex advantages over Chapter 7. For
example, Chapter 13 will usually allow one to stop the foreclosure on a home or
the repossession of a car, whereas a Chapter 7 will merely delay the
foreclosure or repossession.
Some books on the various chapters and their differences can be found here.
One should always consult with an attorney in order to determine which chapter
best suits their specific situation.
3. Do I lose all of my property if I file?
No. In both a Chapter 7 case and a Chapter 13 case, persons who file
bankruptcy may keep all of their property which is “exempt.” Each State
determines how much property (including real estate and personal property) a
person may retain if they file bankruptcy in that State, so that property with a
value which falls below the dollar amount determined by the State is deemed
“exempt” and may be retained by the person filing bankruptcy. Property which
is worth more than the person is allowed to exempt may be sold by the trustee
to pay creditors, or cause the person in bankruptcy to have to pay the trustee
the negotiated value of those assets either directly in Chapter 7 or through a
Chapter 13 Plan to keep them.
Therefore, the amount of property a person may keep in a bankruptcy normally
depends on the State in which he or she files. In some cases, if a person lived
in a different state recently, he or she may end up being required to use the
exemptions from the prior State rather than the State in which he or she is
actually filing bankruptcy - see you attorney for details.
Even though bankruptcy law is federal law, the federal government decided to
let the individual States decide how much property a person filing bankruptcy in
that State may retain. States may use the federal exemptions or they may "opt
out" of the federal exemptions and use their own. Indiana has opted out of the
federal exemptions and has developed its own exemptions (see Indiana Code
34-55-10-1 in which Indiana declared its intent to develop its own exemptions
and not allow the use of federal exemptions).
In Indiana, there are several exemptions that apply to several different types of
property, so an exhaustive discussion is impossible here. Currently, two of the
most common exemptions include the one relating to personal property (such
as cars, furniture, clothing, etc.) and the exemption relating to residential real
estate (see Indiana Code 34-55-10-2). Basically, persons filing bankruptcy in
Indiana may retain up to $8,000.00 personal property and $15,000.00 equity in
residential real estate. These exemptions may be invoked by each person filing
bankruptcy, so a married couple filing a joint bankruptcy may retain up to
$16,000.00 personal property combined and up to $30,000.00 equity in real
estate combined. The cash exemption is $300.00 per person.
If one owns personal property or has equity in real estate above these
exemption amounts, the bankruptcy court may sell the property and give the
sale proceeds above the exemption amounts to the creditors. Property being
sold is more common in a Chapter 7 than a Chapter 13, since in a Chapter 13
there are some avenues to keep property even though it is significantly above
one’s exemption amounts. Therefore, persons in a Chapter 7 only lose
property if it’s worth more than their exemption amounts allow them to retain,
and persons in a Chapter 13 seldom ever lose any property even if they are
above their exemption amounts so long as they structure their Chapter 13 Plan
appropriately. Persons in Chapter 7 can also sometimes retain unexempt
property if they can pay the trustee a negotiated amount to let them keep the
unexempt property (for example: the debtor, through their attorney, says to the
trustee: "I understand you want to sell my $20,000 car because I can only
protect up to $8,000 worth of personal property; However, after protecting my
household goods, clothes, etc., I had $6,200 of my $8,000 exemption left, all of
which I applied to the $20,000 car, leaving only $13,800 of it unexempt. Also, if
you sell it, it will cost you money to hire a tow truck, store it until the sale, insure
it until the sale, hire and auctioneer, transfer the title, etc., which I project will
cost you $2,000. Therefore, I will pay you $11,800 in cash if you let me keep
the car, since that is the amount I project you would net to give to creditors if
you sold it."). This is a unique negotiation in each case.
One should discuss the exemptions pertinent to their case with an attorney
prior to filing a bankruptcy petition.
If a person filing bankruptcy has a lien on a piece of property (such as a
mortgage on a house or a loan on a car) the loan must either (1) continue to be
paid, or (2) be paid through the Chapter 13, in order for the property to be
retained. In other words, one cannot file bankruptcy and wipe out their
mortgage and still get to keep their home (though Chapter 13 can help one get
current on a mortgage again if one has fallen behind on one or more mortgage
payments). There is an exception to this, wherein debtors in Chapter 13 may
"strip" a junior mortgage or mortgages, which means wipe them out, if they owe
more on superior mortgage(s) than the home is worth. This is normally done by
motion during the Chapter 13 case, ask your attorney for details.
4. Will I have to go to court?
Yes. Each person who files bankruptcy must attend one hearing called the
“First Meeting of Creditors.” Sometimes this hearing is called the “341
Hearing” since Section 341 of the Bankruptcy Code is the section which
requires that a hearing be held.
In southern Indiana, each person who files bankruptcy must attend their First
Meeting of Creditors in one of four cities, depending on which county they live
in: Indianapolis, New Albany, Terre Haute, or Evansville. Click here to see
which Bankruptcy Court you will go to based on which county you live in.
The First Meeting of Creditors is usually not held in a courtroom since it is not
presided over by the Bankruptcy Judge. Instead, the court appoints a
bankruptcy trustee to oversee the bankruptcy case, and it is this trustee who
presides over the hearing.
The typical First Meeting of Creditors lasts from five to twenty minutes, during
which time the trustee will ask the debtor (the person who filed bankruptcy)
questions about his or her case. The debtor’s attorney is also present to assist
the debtor with technical questions. Creditors may also appear at this hearing
if they like and ask the debtor questions, though they usually do not attend.
Most of the time this is the only hearing a person who files bankruptcy must
attend, though occasionally one may have to attend a second or third hearing.
One should discuss this possibility with one’s attorney.
5. How does the process of filing bankruptcy work?
First, one consults with an attorney to discuss if bankruptcy is the best option
for him or her. If after the consultation the person decides to file bankruptcy,
then he or she provides the relevant information and documents to his or her
attorney. The attorney then takes the information and prepares the bankruptcy
petition, which the person reviews for accuracy and signs.
One must also obtain a certificate from an approved credit counseling agency
either on the internet, by phone, or in person before filing their case. The
certificate is good for 180 days. Before one's case is over, one must also take
a two hour debtor education course. Click here for a list of providers in
Southern District of Indiana who provide both the certificate and the course (it's
easiest to use one of the services that provide both online). If you do not live in
the Southern District of Indiana, click here for a complete list for the whole
country.
Next, the attorney files the bankruptcy petition with the court, initiating the
case. After the bankruptcy petition is filed, the court will notify all of the
creditors that the case has been filed, so that creditors may not continue to call,
bill, or harass the person who filed. Also, creditors may not foreclose on a
home or repossess a car once they have notice of the bankruptcy filing unless
they first get permission from the court to do so or unless the debtor has filed
previous bankruptcy cases which cause the stay to only go into effect
temporarily or not at all (see your attorney).
About a week after the case is filed, the court will notify the person who filed
bankruptcy, their attorney, and all of the creditors of the date, time, and
location of the “First Meeting of Creditors,” which is the hearing that the person
who filed and his or her attorney must attend. This hearing is usually about five
weeks after the date on which the bankruptcy petition was filed (and is never
sooner than 20 days or later than 40 days after the case is filed (called the "20-
40 rule").
After the hearing, a Chapter 7 case is normally closed 60 days later (at which
time the court mails an “Order of Discharge” to the person who filed
bankruptcy). In a chapter 13, after the hearing and after any issues that arise
are resolved, the court will issue an “Order of Confirmation” in the mail to the
person who filed bankruptcy, approving the Chapter 13 Plan. The Chapter 13
then lasts 36 to 60 months, and at the end of the 36 to 60 months and upon
application from the debtor, the court will mail an “Order of Discharge” to the
person who filed, ending the case.
Each debtor must attend an online class on financial management (around 2
hours long) before their discharge.
6. What types of debt may be discharged in bankruptcy?
Debts which bankruptcy will not usually discharge include income taxes that are
less than three years old, student loans, child support, alimony, criminal fines,
damages resulting from willful or maliciously injury or from accidents involving
alcohol or drugs, and fraud. These are called “nondischargeable” debts.
Bankruptcy will usually discharge all other types of debts, including credit
cards, personal loans, bank overdraft fees, amounts due after the sale of a
repossessed vehicle or foreclosed-upon home, utility bills, medical bills, back
rent, etc.
It should be noted that even though there are some types of debt that are
nondischargeable, even these nondischargeable debts can usually be dealt
with in a Chapter 13 case. Also, some debts which are nondischargeable in a
Chapter 7 case are dischargeable in a Chapter 13, which is one of Chapter
13’s advantages over Chapter 7.
Similarly, it should be noted that some types of debts which are normally
dischargeable may in some cases be declared by the bankruptcy court to be
nondischargeable. For example, credit cards are normally dischargeable, but if
one uses a credit card too recently before filing a bankruptcy, the bankruptcy
court may decide that the credit card was used after the person knew he or she
would be filing bankruptcy on the debt, and therefore the bankruptcy court
would not allow the person to discharge the credit card.
7. How can bankruptcy hurt me?
Chapter 7 is on one’s credit report for ten years, and Chapter 13 is on one’s
credit report for seven years, and either will reduce one's credit rating by 75 to
150 points generally. The appearance of bankruptcy on one’s credit report will
have a negative impact on one’s ability to get credit, and will influence the
interest rate one has to pay for credit that is received.
Typically, bankruptcy will affect one’s ability to get credit for twelve to thirty-six
months. One can normally acquire a car loan 12 months after filing and a
mortgage 24 months after filing (assuming other credit factors are acceptable
such as employment, recent credit rating, etc.).
Some books on credit repair can be found here.
8. How can bankruptcy help me?
Bankruptcy will stop creditor harassment and will allow one to have a fresh
financial start. Bankruptcy can in most cases stop garnishments and can wipe
out judgment liens on real estate. Chapter 13 may be used to stop
foreclosures and repossessions, and will allow a person to restructure most or
all of his or her debts into a reasonable and affordable repayment plan (called
a Chapter 13 Plan).
One frequently has better credit two years after a bankruptcy filing than they
would have had if they had not filed and still had a considerable amount of
unpaid debt and late payments on their credit report.
9. What fees do I have to pay to file bankruptcy?
There are usually three fees one must pay to file a bankruptcy case: attorneys
fees, the filing fee charged by the court, and credit counseling/debtor education
fees.
Attorneys fees vary depending on the complexity of the particular case and
which chapter of bankruptcy one wishes to file. One’s attorney should indicate
the amount of the attorneys fees before one hires the attorney to proceed with
his or her case.
The filing fee goes to the court to administer the case and is a fixed amount set
by the court. Currently, the filing fee for a Chapter 7 case is $299.00, and the
filing fee for a Chapter 13 case is $274.00.
Credit counseling fees are the fees you pay to a third party credit counseling
service to get your credit counseling certificate (before you file your bankruptcy
case) and to get your debtor education certificate (after you file your case but
before your case can be successfully closed). These fees usually total around
$50.00 to $80.00 depending on which provider you use.
10. If I am married, does my spouse have to file too?
No. A married person may either file jointly with his or her spouse or
individually. If the spouse does not file also, the spouse’s credit is generally
unaffected.
One should note that it is problematic for a person who is filing an individual
bankruptcy to transfer assets to his or her spouse or to anyone else.
11. Can I run up my credit cards and then file bankruptcy?
No. The trustee assigned to a case can object to the bankruptcy if he or she
feels that the person who filed the bankruptcy made charges on a credit card or
bought anything on credit when that person knew he or she would eventually
file bankruptcy on the debt. Also, creditors may object if they see a spending
"spike" prior to filing bankruptcy.
If the trustee or a creditor prevails on his or her objection, the bankruptcy court
can declare the credit card to be nondischargeable, dismiss the case, or even
allow criminal proceedings to be instituted against you.
12. What can I do to avoid ever having to file bankruptcy?
Preliminarily, our law office does not engage in financial planning and we
cannot definitively advise anyone on how to prepare financially for life’s
misadventures. We recommend seeing a certified financial planner in order to
get advice in this field. And, sometimes circumstances arise that force even the
most financially conscientious persons to file bankruptcy. However, we can
relate what our experience tells us are the most common reasons bankruptcies
are filed so that you may try and avoid these pitfalls.
First, unexpected medical bills for which one has no insurance or inadequate
insurance causes a considerable number of bankruptcies. So, you should
always maintain health insurance in order to avoid accumulating a massive
amount of medical debt. It may well be the case that it is more to your
advantage to take a lower paying job that offers health insurance than to take a
higher paying job that does not offer insurance unless you will use the extra
money from the better paying job to fund your own health insurance. I know, I
know... affording health insurance is easier said than done. And, even with
health insurance, some people wind up in bankruptcy nonetheless because
even just having to pay 20% of the medical bills is still financially devastating
when the bills are $1,000,000, but it is still better to have it than not if you can.
Another cause of many bankruptcies is having no car insurance or inadequate
car insurance and then getting into an accident. It only takes one time to drop
a cheeseburger in your lap while going sixty m.p.h. and fly through the
neighbor’s gazebo in an Oldsmobile to realize that car insurance pays for itself.
Besides, it’s illegal to drive without it.
Job loss is a major cause of bankruptcy what with so many jobs pulling up
stakes and moving out of town, or just folding altogether. This is a really
troubling cause of bankruptcy because there is no good way to prepare for it.
One could say to avoid working at factories likely to move out of the country,
but who's going to leave their $25/hour factory job (however tenuous) to go
make half as much for the sake of job security? However, no matter how shaky
the job, relying on overtime is shakier still. If you're only able to pay your bills
each month because of the overtime you work, you're living too close to the
edge and you should scale back your spending. At least if you lose a $25/hour
job, you may be able to replace it with 60 hours at a lower payscale, but you
have no chance of staying afloat if you were living on time-and-a-half on top of
your $25/hour.
Credit card usage also forces many people into bankruptcy. The interest and
fees typically compound with such ferocity that one can dig a very deep
financial hole without realizing it. Paying only the minimum payment each
month is the same as flushing your money since many credit cards will take
decades to pay off if you only pay the minimum payment. By way of example,
paying minimum payments on a $10,000.00 credit card balance with a typical
interest rate would take a little over 57 years to pay off. This means if you're 30
years old and you owe $10,000.00 in credit cards and you only pay the
minimum monthly payment, you'll be nearly 90 when they're paid off. 30. 90.
Credit cards may have been invented by the Devil.
Many people are of the opinion that you need a credit card to get by in the
modern world. “I need a credit card for emergencies” and “I can’t even rent a
car or buy anything on the internet without a credit card” seem to be common
quotes supporting this position. And, it's true that credit cards have opened up
a lot of possibilities and they're very convenient. However, one can use a debit
card exactly like a credit card, but the money is drawn from one’s own bank
account rather than a credit card company so there is no risk of being stung for
interest and fees. A small savings account earmarked “for emergencies only” is
far more beneficial to deal with emergency expenditures than a credit card
since you earn interest on the money while it sits in the bank rather than paying
interest on it after you spend it.
13. What alternatives are there to filing bankruptcy?
As stated above, our office is not engaged in financial planning, and nothing in
this website should be construed to be financial planning advice. It is always
best to seek a certified financial planner in order to get advice in this field. The
observations below are for general guidance only and should not be
undertaken without first consulting a financial planning expert.
That being said, it is our experience that many persons have had success in
avoiding bankruptcy by acquiring a home equity loan. If one owns a home and
has sufficient equity in that home, one may be able to get a home equity loan
(which is a mortgage) and use the money to pay off other debts. This process
is called “debt consolidation,” and there are some advantages to consolidating
multiple debts into a single home equity loan.
First of all, a home equity loan will usually have a better interest rate than the
rate on the other debts one is seeking to consolidate (especially if the debts
one wishes to consolidate are credit cards).
Secondly, home equity loans may allow a repayment term that is several
months or years longer than the repayment terms of the debts being
consolidated, so the monthly payment will be lower and more manageable.
While it costs one more to pay interest over a longer repayment term, it may
make the monthly payment sufficiently feasible to allow one to avoid filing
bankruptcy on the debts.
Thirdly, one may be able to settle the consolidated debts for a lower amount
than the total amount owed on the debts. For example, if one owes $21,000.00
in credit cards and she can borrow $13,000.00 as a second mortgage on her
home, she may be able to get the credit card companies to accept the
$13,000.00 as full and final settlement of the cards, and she thereby saved
herself $8,000.00. It should be noted that there are some pitfalls with debt
settlement, such as the IRS considering the forgiven debt as income. It is
possible that, in the example above, the IRS will want the borrower to pay taxes
on the $8,000.00 she saved, so it is always a good idea to save some money
back for taxes when settling debts. Another pitfall is that credit card companies
or other creditors with whom you are trying to settle a debt may tell you they'll
accept a certain amount as full and final settlement, but if you don't get it in
writing prior to sending the settlement funds it is likely that they'll keep billing
you for the balance. Another pitfall is that when the creditor does accept a
settlement amount, they will want the settlement amount in a lump sum in a very
short amount of time, so you frequently need to have all of the funds on hand
and ready to go prior to settlement. Another pitfall is that if you miss the
deadline to get the settlement funds to the creditor, they will say the settlement
deal is off because you missed the deadline and they will keep billing you for
the balance. So, it is always best to send settlement payments certified with
return receipt requested so you can prove that the creditor received the funds
timely. Go here for books on debt settlement.
Finally, home equity loans can be advantageous because it may be the case
that interest paid on home equity loans is tax deductible (see a tax
professional), whereas the interest paid on most debts that are consolidated is
not usually tax deductible. So, by consolidating debts and creating a more
manageable monthly payment, one may also give oneself a tax advantage.
A company with whom past clients have had success in consolidating debts with
a home equity loan is The Mortgage Company, which may be reached at
(812) 275-2022.
One should be cautioned that while home equity loans may be very helpful in
avoiding bankruptcy, you should ensure that the home equity loan will put you
in a good financial condition with an easily manageable payment prior to
entering into the loan, and afterwards you should avoid credit cards like the
plague.
The reason for this is that it is especially unfortunate if you consolidate your
debts with a home equity loan but then ultimately wind up having to file
bankruptcy anyway. Home equity loans may not be discharged in bankruptcy
unless the home is surrendered and lost (in most cases), whereas many types
of debts people consolidate with home equity loans are dischargeable in
bankruptcy. So, home equity loans turn what is typically unsecured,
dischargeable debt into secured, nondischargeable debt.
If you do not own a home, or do not have enough equity in your home to qualify
for a home equity loan, then you may be able to avoid bankruptcy by contacting
a credit counseling service. Credit counseling services basically contact all of
your unsecured creditors (that is, they only contact creditors who do not have
the right to repossess any collateral, such as credit cards, medical providers,
etc.) and try to get those creditors to reduce the balances owed, the interest
rates, and/or the monthly payment amounts. Then you simply pay a single
monthly payment to the credit counseling service, who then disburses the
money to the creditors. This monthly fee continues until the creditors are all
paid off.
It should be noted that credit counseling services will not usually assist in
dealing with any secured creditors (that is, creditors who have the right to
repossess some collateral, such as house loans, car loans, furniture loans,
etc.), but may be quite helpful in dealing with unsecured creditors.
Credit counseling services should be selected carefully since some credit
counseling services are definitely better than others. A credit counseling
service with whom past clients have had success in avoiding bankruptcy is
Mometive Credit Counseling, which may be reached at (812) 333-6083.
14. Will I get fired for filing bankruptcy?
No. The Bankruptcy Code has a provision in 11 U.S.C. 525 which prohibits
employers from discriminating against an employee solely based on the fact
that the employee filed bankruptcy. In most cases, an employer doesn't even
know the employee filed bankruptcy.
15. Will my creditors stop harassing me if I file bankruptcy?
Yes, in most cases. 11 U.S.C. 362 requires creditors to immediately stop
harassing you upon your filing of a bankruptcy petition. This same code
section also generally stops garnishments, writs of attachment, sheriff sales of
homes, foreclosures, lawsuits, and the like. It should be noted that there are
some instances in which bankruptcy will only temporarily stop collection efforts,
or will not stop them at all, if previous bankruptcies were filed too recently (see
your attorney for details).
16. Do I have to use a lawyer to file bankruptcy?
No. However, a bankruptcy filing can be complicated and it is advisable to seek
professional help. And no - we're not just saying that because we are a law
office.
17. How often can you file bankruptcy?
A Chapter 7 cannot be filed within 8 years of the filing date of a prior Chapter 7
or Chapter 11 bankruptcy that received discharge (see 11 U.S.C. § 727(a)(8),
here).
A Chapter 7 cannot be filed within 6 years of the filing date of a prior Chapter
12 or Chapter 13 bankruptcy that received discharge (see 11 U.S.C. § 727(a)
(9), here) unless certain criteria regarding how much money was paid to
unsecured creditors in the prior Chapter 12 or 13, and under what
circumstances, are met.
A Chapter 13 may be filed anytime after a prior case, but if it is filed within one
year of the pendency of a prior case, the stay only protects you for 30 days
unless you get the Court to extend your stay. If two cases have pended within
the year before a Chapter 13 is filed, then no stay goes into effect unless you
can get the Court to grant a stay (see 11 U.S.C. § 362(c)(3) and (4), here).
Also, if a Chapter 13 case is filed within 4 years of the filing date of a prior
Chapter 7, 11, or 12 case that received discharge, or within 2 years of the filing
date of a prior Chapter 13 case that received discharge, then the current
Chapter 13 can have a stay and reorganize debts but cannot be granted a
discharge (see 11 U.S.C. §1328(f)(1) and (2), here).
Obviously, these rules are complicated and should be discussed with an
attorney.
18. Once I realize I may need to file bankruptcy, what should I do?
First of all, STOP using credit cards. Stop charging and stop making any cash
advances. Also, stop all services that continue to bill to credit cards, such as
internet providers. Don't get any more personal loans or payday loans. The
Bankruptcy Code has provisions against acquiring any of these types of debt
too recently prior to filing a bankruptcy petition.
Second, don't transfer any property to anyone else, and don't acquire any new
property.
Third, don't destroy any business or financial documents.
Finally, contact an attorney and set up a consultation as soon as possible. It
may be advisable that you stop paying certain bills, so you want to get advice
as soon as possible so you don't continue to throw money away by paying bills
that you can wipe out in your bankruptcy case.
19. Is the bankruptcy filing printed in the newspaper?
Maybe. Bankruptcy filings are public record, so any newspaper choosing to
print the bankruptcy filings may do so, but no paper is required to do so. Some
papers do and some don't, so check with your local paper to see if they do or
not.
20. How long do I have to live in a district before I can file bankruptcy
there?
91 days, basically. 28 U.S.C. 1408 requires that one live in a district for the
greater part of the preceding 180 days in order to file a bankruptcy in that
district, and of course the greater part of 180 days is 91 days or more. There
are some minutia regarding this code section that should be discussed with an
attorney.
21. I've heard of a "Chapter 20," what is that?
There is no Chapter 20 in the Bankruptcy Code, but as an unknown individual
at the Doney & Associates law firm surmised, "there is no real Chapter 20, but
we bankruptcy attorneys amuse ourselves by proving that we can add." A
Chapter 20 is when you file a Chapter 13 right after a Chapter 7. One reason
some people do this is because you cannot stop a home foreclosure with a
Chapter 7, but you cannot file a Chapter 13 if your unsecured debt exceeds a
certain dollar amount. So, if someone's home is being foreclosed but their
unsecured debt amount exceeds the limit for a Chapter 13, those persons may
file a Chapter 7 and wipe out the unsecured debt, then file a Chapter 13 and
stop the home foreclosure. Courts generally frown on Chapter 20's, though not
all do.
22. Do I have to have a certain amount of debt to file bankruptcy?
No. You may file Chapter 7 regardless of how much or little money you owe,
and you may file Chapter 13 so long as your debt does not exceed certain
dollar amounts pursuant to 11 U.S.C. § 109(e), here, though these amounts
change from time to time. However, if you don't owe very much, your situation
may not warrant filing bankruptcy. Ask your attorney about this.
23. Does my filing bankruptcy protect a co-signer?
Not usually. The only way to protect a co-signer is to continue to pay the debt
after the bankruptcy is filed (either directly after a Chapter 7 or through the
Plan in a Chapter 13) or have the co-signer file bankruptcy also.
24. What is the typical debtor profile?
People from all walks of life and ages file bankruptcy for various reasons.
According to The Fragile Middle Class: Americans in Debt, Elizabeth Warren,
Harvard Law School, the average age of persons who file bankruptcy is 38;
44% of filers are couples; 30% are women filing alone; 26% are men filing
alone; Persons who file bankruptcy are slightly better educated than the
general population; Two out of three people who file have lost a job; Half the
people who file have suffered serious health problems; Over 91% of people
who file have suffered a job loss, medical event, or divorce; and the states with
the highest bankruptcy rates are Tennessee, Utah, Georgia, and Alabama.
25. Is there anything I can do to get collection agencies to stop calling
me besides filing bankruptcy?
Yes. Collection agencies (which are companies who collect debts owed to
another person or company) must follow certain rules in collecting debts
pursuant to the Fair Debt Collections Practices Act, which is federal law written
in Title 15 of the United States Code. One may send to collection agencies a
letter similar to the sample letter listed below in order to stop harassing phone
calls. However, sending this letter does not mean that the debt is no longer
owed, or that the creditor cannot sue you to collect the debt, but merely
requires the collection agency to follow certain rules in attempting to collect the
debt. Also, it should be noted that this letter is only applicable to collection
agencies, which are companies collecting debts owed to another, and not to the
original creditor if that creditor has undertaken their own collection activities. It
also does not apply to collection agencies which are collecting commercial (i.e.
business-related) debt rather than consumer debt.
The following sample letter is designed to be mailed to a collection
agency by Certified Mail, Return Receipt Requested, with the sender
retaining a copy:
---------------------------------------------------------------------------------------------------
(Collection Agencies’ name) (Date)
(Collection Agencies’ address)
Via Certified Mail, Return Receipt Requested, Article No. (certified article
number)
Re: (Your name)
(Your account number)
Dear Collection Agency:
Please be advised that while I am not at this time disputing the validity of the
debt on which you are collecting, though I expressly reserve that right for the
future if it becomes applicable, I am hereby exercising my right under federal
law to require you to collect on said debt in a legal fashion and in compliance
with the Fair Debt Collection Practices Act.
Pursuant to 15 U.S.C. 1692c (Fair Debt Collection Practices Act sec. 805(c )) I
am hereby informing you that I wish you, your company, and any and all agents
thereof to cease further communication with me other than as permitted by the
above-cited federal statute. This means that pursuant to 15 U.S.C. 1692c (Fair
Debt Collection Practices Act sec. 805(a)(2)), the only further communications
you are allowed by law to make to me is limited to (1) advising me that your
further collection efforts are being terminated, (2) that you may invoke special
remedies which are ordinarily invoked by your company, and (3) to notify me
that you intend to invoke a special remedy. According to the same statute, you
also may not contact my spouse, parent, guardian, executor, administrator,
employer, or any other person in connection with the debt.
Also, this letter serves as your notice that it is inconvenient for me, for the
purposes of 15 U.S.C. 1692c (Fair Debt Collection Practices Act sec. 805(a)
(1)), for you to contact me by telephone or in person at any time, and that all
further communications from you to me must be made in writing.
If you contact my spouse, parent, guardian, executor, administrator, employer,
or any other person in connection with my debt, either by mail, in person, by
telephone, or by any other means, or if you contact me by any means other
than by mail, or if you mail me anything other than that which is permitted by law
as described above, I may have the right to pursue sanctions against your
company pursuant to 15 U.S.C. 1692k (Fair Debt Collection Practices Act sec.
813) or any other applicable state or federal law.
Sincerely,
(Your signature)
(Your name printed)
---------------------------------------------------------------------------------------------------
Copyright © by Joseph A. Ross. All rights reserved.
This website is designed to provide general information only. The information
presented in this site should not be construed to be formal legal advice nor the
formation of an attorney-client relationship. Persons accessing this website are
encouraged to seek independent legal counsel for guidance regarding their
individual circumstances.
There are five chapters of bankruptcy: Chapters 7, 9, 11, 12, and 13 (Chapter
15 was repealed). Chapter 9 is for municipalities only, Chapter 11 is a
business reorganization chapter typically only filed by sizeable companies, and
Chapter 12 is only for farmers. Chapter 15 was for cross-border cases but has
been repealed. Therefore, most people who file bankruptcy file either Chapter
7, more commonly known as “liquidation” or “total bankruptcy”, or Chapter 13,
more commonly known as “reorganization” or a “wage earner plan.”
2. What is the difference between Chapter 7 and Chapter 13?
There are several differences between Chapter 7 and Chapter 13, and a more
thorough discussion can be found in the “Chapter 7 vs. Chapter 13” link, but
basically Chapter 7 is a relatively quick process in which one discharges his or
her debts that are dischargeable, whereas one who files a Chapter 13 makes
payments for usually 60 months and pays back a portion of what he or she
owes, depending on what he or she can afford to repay, and the portion of the
debt that is not paid back is discharged.
Based on this simplistic explanation, it sounds as if everyone would want to file
a Chapter 7 rather than a Chapter 13. However, this is not necessarily the
case since Chapter 13 has several complex advantages over Chapter 7. For
example, Chapter 13 will usually allow one to stop the foreclosure on a home or
the repossession of a car, whereas a Chapter 7 will merely delay the
foreclosure or repossession.
Some books on the various chapters and their differences can be found here.
One should always consult with an attorney in order to determine which chapter
best suits their specific situation.
3. Do I lose all of my property if I file?
No. In both a Chapter 7 case and a Chapter 13 case, persons who file
bankruptcy may keep all of their property which is “exempt.” Each State
determines how much property (including real estate and personal property) a
person may retain if they file bankruptcy in that State, so that property with a
value which falls below the dollar amount determined by the State is deemed
“exempt” and may be retained by the person filing bankruptcy. Property which
is worth more than the person is allowed to exempt may be sold by the trustee
to pay creditors, or cause the person in bankruptcy to have to pay the trustee
the negotiated value of those assets either directly in Chapter 7 or through a
Chapter 13 Plan to keep them.
Therefore, the amount of property a person may keep in a bankruptcy normally
depends on the State in which he or she files. In some cases, if a person lived
in a different state recently, he or she may end up being required to use the
exemptions from the prior State rather than the State in which he or she is
actually filing bankruptcy - see you attorney for details.
Even though bankruptcy law is federal law, the federal government decided to
let the individual States decide how much property a person filing bankruptcy in
that State may retain. States may use the federal exemptions or they may "opt
out" of the federal exemptions and use their own. Indiana has opted out of the
federal exemptions and has developed its own exemptions (see Indiana Code
34-55-10-1 in which Indiana declared its intent to develop its own exemptions
and not allow the use of federal exemptions).
In Indiana, there are several exemptions that apply to several different types of
property, so an exhaustive discussion is impossible here. Currently, two of the
most common exemptions include the one relating to personal property (such
as cars, furniture, clothing, etc.) and the exemption relating to residential real
estate (see Indiana Code 34-55-10-2). Basically, persons filing bankruptcy in
Indiana may retain up to $8,000.00 personal property and $15,000.00 equity in
residential real estate. These exemptions may be invoked by each person filing
bankruptcy, so a married couple filing a joint bankruptcy may retain up to
$16,000.00 personal property combined and up to $30,000.00 equity in real
estate combined. The cash exemption is $300.00 per person.
If one owns personal property or has equity in real estate above these
exemption amounts, the bankruptcy court may sell the property and give the
sale proceeds above the exemption amounts to the creditors. Property being
sold is more common in a Chapter 7 than a Chapter 13, since in a Chapter 13
there are some avenues to keep property even though it is significantly above
one’s exemption amounts. Therefore, persons in a Chapter 7 only lose
property if it’s worth more than their exemption amounts allow them to retain,
and persons in a Chapter 13 seldom ever lose any property even if they are
above their exemption amounts so long as they structure their Chapter 13 Plan
appropriately. Persons in Chapter 7 can also sometimes retain unexempt
property if they can pay the trustee a negotiated amount to let them keep the
unexempt property (for example: the debtor, through their attorney, says to the
trustee: "I understand you want to sell my $20,000 car because I can only
protect up to $8,000 worth of personal property; However, after protecting my
household goods, clothes, etc., I had $6,200 of my $8,000 exemption left, all of
which I applied to the $20,000 car, leaving only $13,800 of it unexempt. Also, if
you sell it, it will cost you money to hire a tow truck, store it until the sale, insure
it until the sale, hire and auctioneer, transfer the title, etc., which I project will
cost you $2,000. Therefore, I will pay you $11,800 in cash if you let me keep
the car, since that is the amount I project you would net to give to creditors if
you sold it."). This is a unique negotiation in each case.
One should discuss the exemptions pertinent to their case with an attorney
prior to filing a bankruptcy petition.
If a person filing bankruptcy has a lien on a piece of property (such as a
mortgage on a house or a loan on a car) the loan must either (1) continue to be
paid, or (2) be paid through the Chapter 13, in order for the property to be
retained. In other words, one cannot file bankruptcy and wipe out their
mortgage and still get to keep their home (though Chapter 13 can help one get
current on a mortgage again if one has fallen behind on one or more mortgage
payments). There is an exception to this, wherein debtors in Chapter 13 may
"strip" a junior mortgage or mortgages, which means wipe them out, if they owe
more on superior mortgage(s) than the home is worth. This is normally done by
motion during the Chapter 13 case, ask your attorney for details.
4. Will I have to go to court?
Yes. Each person who files bankruptcy must attend one hearing called the
“First Meeting of Creditors.” Sometimes this hearing is called the “341
Hearing” since Section 341 of the Bankruptcy Code is the section which
requires that a hearing be held.
In southern Indiana, each person who files bankruptcy must attend their First
Meeting of Creditors in one of four cities, depending on which county they live
in: Indianapolis, New Albany, Terre Haute, or Evansville. Click here to see
which Bankruptcy Court you will go to based on which county you live in.
The First Meeting of Creditors is usually not held in a courtroom since it is not
presided over by the Bankruptcy Judge. Instead, the court appoints a
bankruptcy trustee to oversee the bankruptcy case, and it is this trustee who
presides over the hearing.
The typical First Meeting of Creditors lasts from five to twenty minutes, during
which time the trustee will ask the debtor (the person who filed bankruptcy)
questions about his or her case. The debtor’s attorney is also present to assist
the debtor with technical questions. Creditors may also appear at this hearing
if they like and ask the debtor questions, though they usually do not attend.
Most of the time this is the only hearing a person who files bankruptcy must
attend, though occasionally one may have to attend a second or third hearing.
One should discuss this possibility with one’s attorney.
5. How does the process of filing bankruptcy work?
First, one consults with an attorney to discuss if bankruptcy is the best option
for him or her. If after the consultation the person decides to file bankruptcy,
then he or she provides the relevant information and documents to his or her
attorney. The attorney then takes the information and prepares the bankruptcy
petition, which the person reviews for accuracy and signs.
One must also obtain a certificate from an approved credit counseling agency
either on the internet, by phone, or in person before filing their case. The
certificate is good for 180 days. Before one's case is over, one must also take
a two hour debtor education course. Click here for a list of providers in
Southern District of Indiana who provide both the certificate and the course (it's
easiest to use one of the services that provide both online). If you do not live in
the Southern District of Indiana, click here for a complete list for the whole
country.
Next, the attorney files the bankruptcy petition with the court, initiating the
case. After the bankruptcy petition is filed, the court will notify all of the
creditors that the case has been filed, so that creditors may not continue to call,
bill, or harass the person who filed. Also, creditors may not foreclose on a
home or repossess a car once they have notice of the bankruptcy filing unless
they first get permission from the court to do so or unless the debtor has filed
previous bankruptcy cases which cause the stay to only go into effect
temporarily or not at all (see your attorney).
About a week after the case is filed, the court will notify the person who filed
bankruptcy, their attorney, and all of the creditors of the date, time, and
location of the “First Meeting of Creditors,” which is the hearing that the person
who filed and his or her attorney must attend. This hearing is usually about five
weeks after the date on which the bankruptcy petition was filed (and is never
sooner than 20 days or later than 40 days after the case is filed (called the "20-
40 rule").
After the hearing, a Chapter 7 case is normally closed 60 days later (at which
time the court mails an “Order of Discharge” to the person who filed
bankruptcy). In a chapter 13, after the hearing and after any issues that arise
are resolved, the court will issue an “Order of Confirmation” in the mail to the
person who filed bankruptcy, approving the Chapter 13 Plan. The Chapter 13
then lasts 36 to 60 months, and at the end of the 36 to 60 months and upon
application from the debtor, the court will mail an “Order of Discharge” to the
person who filed, ending the case.
Each debtor must attend an online class on financial management (around 2
hours long) before their discharge.
6. What types of debt may be discharged in bankruptcy?
Debts which bankruptcy will not usually discharge include income taxes that are
less than three years old, student loans, child support, alimony, criminal fines,
damages resulting from willful or maliciously injury or from accidents involving
alcohol or drugs, and fraud. These are called “nondischargeable” debts.
Bankruptcy will usually discharge all other types of debts, including credit
cards, personal loans, bank overdraft fees, amounts due after the sale of a
repossessed vehicle or foreclosed-upon home, utility bills, medical bills, back
rent, etc.
It should be noted that even though there are some types of debt that are
nondischargeable, even these nondischargeable debts can usually be dealt
with in a Chapter 13 case. Also, some debts which are nondischargeable in a
Chapter 7 case are dischargeable in a Chapter 13, which is one of Chapter
13’s advantages over Chapter 7.
Similarly, it should be noted that some types of debts which are normally
dischargeable may in some cases be declared by the bankruptcy court to be
nondischargeable. For example, credit cards are normally dischargeable, but if
one uses a credit card too recently before filing a bankruptcy, the bankruptcy
court may decide that the credit card was used after the person knew he or she
would be filing bankruptcy on the debt, and therefore the bankruptcy court
would not allow the person to discharge the credit card.
7. How can bankruptcy hurt me?
Chapter 7 is on one’s credit report for ten years, and Chapter 13 is on one’s
credit report for seven years, and either will reduce one's credit rating by 75 to
150 points generally. The appearance of bankruptcy on one’s credit report will
have a negative impact on one’s ability to get credit, and will influence the
interest rate one has to pay for credit that is received.
Typically, bankruptcy will affect one’s ability to get credit for twelve to thirty-six
months. One can normally acquire a car loan 12 months after filing and a
mortgage 24 months after filing (assuming other credit factors are acceptable
such as employment, recent credit rating, etc.).
Some books on credit repair can be found here.
8. How can bankruptcy help me?
Bankruptcy will stop creditor harassment and will allow one to have a fresh
financial start. Bankruptcy can in most cases stop garnishments and can wipe
out judgment liens on real estate. Chapter 13 may be used to stop
foreclosures and repossessions, and will allow a person to restructure most or
all of his or her debts into a reasonable and affordable repayment plan (called
a Chapter 13 Plan).
One frequently has better credit two years after a bankruptcy filing than they
would have had if they had not filed and still had a considerable amount of
unpaid debt and late payments on their credit report.
9. What fees do I have to pay to file bankruptcy?
There are usually three fees one must pay to file a bankruptcy case: attorneys
fees, the filing fee charged by the court, and credit counseling/debtor education
fees.
Attorneys fees vary depending on the complexity of the particular case and
which chapter of bankruptcy one wishes to file. One’s attorney should indicate
the amount of the attorneys fees before one hires the attorney to proceed with
his or her case.
The filing fee goes to the court to administer the case and is a fixed amount set
by the court. Currently, the filing fee for a Chapter 7 case is $299.00, and the
filing fee for a Chapter 13 case is $274.00.
Credit counseling fees are the fees you pay to a third party credit counseling
service to get your credit counseling certificate (before you file your bankruptcy
case) and to get your debtor education certificate (after you file your case but
before your case can be successfully closed). These fees usually total around
$50.00 to $80.00 depending on which provider you use.
10. If I am married, does my spouse have to file too?
No. A married person may either file jointly with his or her spouse or
individually. If the spouse does not file also, the spouse’s credit is generally
unaffected.
One should note that it is problematic for a person who is filing an individual
bankruptcy to transfer assets to his or her spouse or to anyone else.
11. Can I run up my credit cards and then file bankruptcy?
No. The trustee assigned to a case can object to the bankruptcy if he or she
feels that the person who filed the bankruptcy made charges on a credit card or
bought anything on credit when that person knew he or she would eventually
file bankruptcy on the debt. Also, creditors may object if they see a spending
"spike" prior to filing bankruptcy.
If the trustee or a creditor prevails on his or her objection, the bankruptcy court
can declare the credit card to be nondischargeable, dismiss the case, or even
allow criminal proceedings to be instituted against you.
12. What can I do to avoid ever having to file bankruptcy?
Preliminarily, our law office does not engage in financial planning and we
cannot definitively advise anyone on how to prepare financially for life’s
misadventures. We recommend seeing a certified financial planner in order to
get advice in this field. And, sometimes circumstances arise that force even the
most financially conscientious persons to file bankruptcy. However, we can
relate what our experience tells us are the most common reasons bankruptcies
are filed so that you may try and avoid these pitfalls.
First, unexpected medical bills for which one has no insurance or inadequate
insurance causes a considerable number of bankruptcies. So, you should
always maintain health insurance in order to avoid accumulating a massive
amount of medical debt. It may well be the case that it is more to your
advantage to take a lower paying job that offers health insurance than to take a
higher paying job that does not offer insurance unless you will use the extra
money from the better paying job to fund your own health insurance. I know, I
know... affording health insurance is easier said than done. And, even with
health insurance, some people wind up in bankruptcy nonetheless because
even just having to pay 20% of the medical bills is still financially devastating
when the bills are $1,000,000, but it is still better to have it than not if you can.
Another cause of many bankruptcies is having no car insurance or inadequate
car insurance and then getting into an accident. It only takes one time to drop
a cheeseburger in your lap while going sixty m.p.h. and fly through the
neighbor’s gazebo in an Oldsmobile to realize that car insurance pays for itself.
Besides, it’s illegal to drive without it.
Job loss is a major cause of bankruptcy what with so many jobs pulling up
stakes and moving out of town, or just folding altogether. This is a really
troubling cause of bankruptcy because there is no good way to prepare for it.
One could say to avoid working at factories likely to move out of the country,
but who's going to leave their $25/hour factory job (however tenuous) to go
make half as much for the sake of job security? However, no matter how shaky
the job, relying on overtime is shakier still. If you're only able to pay your bills
each month because of the overtime you work, you're living too close to the
edge and you should scale back your spending. At least if you lose a $25/hour
job, you may be able to replace it with 60 hours at a lower payscale, but you
have no chance of staying afloat if you were living on time-and-a-half on top of
your $25/hour.
Credit card usage also forces many people into bankruptcy. The interest and
fees typically compound with such ferocity that one can dig a very deep
financial hole without realizing it. Paying only the minimum payment each
month is the same as flushing your money since many credit cards will take
decades to pay off if you only pay the minimum payment. By way of example,
paying minimum payments on a $10,000.00 credit card balance with a typical
interest rate would take a little over 57 years to pay off. This means if you're 30
years old and you owe $10,000.00 in credit cards and you only pay the
minimum monthly payment, you'll be nearly 90 when they're paid off. 30. 90.
Credit cards may have been invented by the Devil.
Many people are of the opinion that you need a credit card to get by in the
modern world. “I need a credit card for emergencies” and “I can’t even rent a
car or buy anything on the internet without a credit card” seem to be common
quotes supporting this position. And, it's true that credit cards have opened up
a lot of possibilities and they're very convenient. However, one can use a debit
card exactly like a credit card, but the money is drawn from one’s own bank
account rather than a credit card company so there is no risk of being stung for
interest and fees. A small savings account earmarked “for emergencies only” is
far more beneficial to deal with emergency expenditures than a credit card
since you earn interest on the money while it sits in the bank rather than paying
interest on it after you spend it.
13. What alternatives are there to filing bankruptcy?
As stated above, our office is not engaged in financial planning, and nothing in
this website should be construed to be financial planning advice. It is always
best to seek a certified financial planner in order to get advice in this field. The
observations below are for general guidance only and should not be
undertaken without first consulting a financial planning expert.
That being said, it is our experience that many persons have had success in
avoiding bankruptcy by acquiring a home equity loan. If one owns a home and
has sufficient equity in that home, one may be able to get a home equity loan
(which is a mortgage) and use the money to pay off other debts. This process
is called “debt consolidation,” and there are some advantages to consolidating
multiple debts into a single home equity loan.
First of all, a home equity loan will usually have a better interest rate than the
rate on the other debts one is seeking to consolidate (especially if the debts
one wishes to consolidate are credit cards).
Secondly, home equity loans may allow a repayment term that is several
months or years longer than the repayment terms of the debts being
consolidated, so the monthly payment will be lower and more manageable.
While it costs one more to pay interest over a longer repayment term, it may
make the monthly payment sufficiently feasible to allow one to avoid filing
bankruptcy on the debts.
Thirdly, one may be able to settle the consolidated debts for a lower amount
than the total amount owed on the debts. For example, if one owes $21,000.00
in credit cards and she can borrow $13,000.00 as a second mortgage on her
home, she may be able to get the credit card companies to accept the
$13,000.00 as full and final settlement of the cards, and she thereby saved
herself $8,000.00. It should be noted that there are some pitfalls with debt
settlement, such as the IRS considering the forgiven debt as income. It is
possible that, in the example above, the IRS will want the borrower to pay taxes
on the $8,000.00 she saved, so it is always a good idea to save some money
back for taxes when settling debts. Another pitfall is that credit card companies
or other creditors with whom you are trying to settle a debt may tell you they'll
accept a certain amount as full and final settlement, but if you don't get it in
writing prior to sending the settlement funds it is likely that they'll keep billing
you for the balance. Another pitfall is that when the creditor does accept a
settlement amount, they will want the settlement amount in a lump sum in a very
short amount of time, so you frequently need to have all of the funds on hand
and ready to go prior to settlement. Another pitfall is that if you miss the
deadline to get the settlement funds to the creditor, they will say the settlement
deal is off because you missed the deadline and they will keep billing you for
the balance. So, it is always best to send settlement payments certified with
return receipt requested so you can prove that the creditor received the funds
timely. Go here for books on debt settlement.
Finally, home equity loans can be advantageous because it may be the case
that interest paid on home equity loans is tax deductible (see a tax
professional), whereas the interest paid on most debts that are consolidated is
not usually tax deductible. So, by consolidating debts and creating a more
manageable monthly payment, one may also give oneself a tax advantage.
A company with whom past clients have had success in consolidating debts with
a home equity loan is The Mortgage Company, which may be reached at
(812) 275-2022.
One should be cautioned that while home equity loans may be very helpful in
avoiding bankruptcy, you should ensure that the home equity loan will put you
in a good financial condition with an easily manageable payment prior to
entering into the loan, and afterwards you should avoid credit cards like the
plague.
The reason for this is that it is especially unfortunate if you consolidate your
debts with a home equity loan but then ultimately wind up having to file
bankruptcy anyway. Home equity loans may not be discharged in bankruptcy
unless the home is surrendered and lost (in most cases), whereas many types
of debts people consolidate with home equity loans are dischargeable in
bankruptcy. So, home equity loans turn what is typically unsecured,
dischargeable debt into secured, nondischargeable debt.
If you do not own a home, or do not have enough equity in your home to qualify
for a home equity loan, then you may be able to avoid bankruptcy by contacting
a credit counseling service. Credit counseling services basically contact all of
your unsecured creditors (that is, they only contact creditors who do not have
the right to repossess any collateral, such as credit cards, medical providers,
etc.) and try to get those creditors to reduce the balances owed, the interest
rates, and/or the monthly payment amounts. Then you simply pay a single
monthly payment to the credit counseling service, who then disburses the
money to the creditors. This monthly fee continues until the creditors are all
paid off.
It should be noted that credit counseling services will not usually assist in
dealing with any secured creditors (that is, creditors who have the right to
repossess some collateral, such as house loans, car loans, furniture loans,
etc.), but may be quite helpful in dealing with unsecured creditors.
Credit counseling services should be selected carefully since some credit
counseling services are definitely better than others. A credit counseling
service with whom past clients have had success in avoiding bankruptcy is
Mometive Credit Counseling, which may be reached at (812) 333-6083.
14. Will I get fired for filing bankruptcy?
No. The Bankruptcy Code has a provision in 11 U.S.C. 525 which prohibits
employers from discriminating against an employee solely based on the fact
that the employee filed bankruptcy. In most cases, an employer doesn't even
know the employee filed bankruptcy.
15. Will my creditors stop harassing me if I file bankruptcy?
Yes, in most cases. 11 U.S.C. 362 requires creditors to immediately stop
harassing you upon your filing of a bankruptcy petition. This same code
section also generally stops garnishments, writs of attachment, sheriff sales of
homes, foreclosures, lawsuits, and the like. It should be noted that there are
some instances in which bankruptcy will only temporarily stop collection efforts,
or will not stop them at all, if previous bankruptcies were filed too recently (see
your attorney for details).
16. Do I have to use a lawyer to file bankruptcy?
No. However, a bankruptcy filing can be complicated and it is advisable to seek
professional help. And no - we're not just saying that because we are a law
office.
17. How often can you file bankruptcy?
A Chapter 7 cannot be filed within 8 years of the filing date of a prior Chapter 7
or Chapter 11 bankruptcy that received discharge (see 11 U.S.C. § 727(a)(8),
here).
A Chapter 7 cannot be filed within 6 years of the filing date of a prior Chapter
12 or Chapter 13 bankruptcy that received discharge (see 11 U.S.C. § 727(a)
(9), here) unless certain criteria regarding how much money was paid to
unsecured creditors in the prior Chapter 12 or 13, and under what
circumstances, are met.
A Chapter 13 may be filed anytime after a prior case, but if it is filed within one
year of the pendency of a prior case, the stay only protects you for 30 days
unless you get the Court to extend your stay. If two cases have pended within
the year before a Chapter 13 is filed, then no stay goes into effect unless you
can get the Court to grant a stay (see 11 U.S.C. § 362(c)(3) and (4), here).
Also, if a Chapter 13 case is filed within 4 years of the filing date of a prior
Chapter 7, 11, or 12 case that received discharge, or within 2 years of the filing
date of a prior Chapter 13 case that received discharge, then the current
Chapter 13 can have a stay and reorganize debts but cannot be granted a
discharge (see 11 U.S.C. §1328(f)(1) and (2), here).
Obviously, these rules are complicated and should be discussed with an
attorney.
18. Once I realize I may need to file bankruptcy, what should I do?
First of all, STOP using credit cards. Stop charging and stop making any cash
advances. Also, stop all services that continue to bill to credit cards, such as
internet providers. Don't get any more personal loans or payday loans. The
Bankruptcy Code has provisions against acquiring any of these types of debt
too recently prior to filing a bankruptcy petition.
Second, don't transfer any property to anyone else, and don't acquire any new
property.
Third, don't destroy any business or financial documents.
Finally, contact an attorney and set up a consultation as soon as possible. It
may be advisable that you stop paying certain bills, so you want to get advice
as soon as possible so you don't continue to throw money away by paying bills
that you can wipe out in your bankruptcy case.
19. Is the bankruptcy filing printed in the newspaper?
Maybe. Bankruptcy filings are public record, so any newspaper choosing to
print the bankruptcy filings may do so, but no paper is required to do so. Some
papers do and some don't, so check with your local paper to see if they do or
not.
20. How long do I have to live in a district before I can file bankruptcy
there?
91 days, basically. 28 U.S.C. 1408 requires that one live in a district for the
greater part of the preceding 180 days in order to file a bankruptcy in that
district, and of course the greater part of 180 days is 91 days or more. There
are some minutia regarding this code section that should be discussed with an
attorney.
21. I've heard of a "Chapter 20," what is that?
There is no Chapter 20 in the Bankruptcy Code, but as an unknown individual
at the Doney & Associates law firm surmised, "there is no real Chapter 20, but
we bankruptcy attorneys amuse ourselves by proving that we can add." A
Chapter 20 is when you file a Chapter 13 right after a Chapter 7. One reason
some people do this is because you cannot stop a home foreclosure with a
Chapter 7, but you cannot file a Chapter 13 if your unsecured debt exceeds a
certain dollar amount. So, if someone's home is being foreclosed but their
unsecured debt amount exceeds the limit for a Chapter 13, those persons may
file a Chapter 7 and wipe out the unsecured debt, then file a Chapter 13 and
stop the home foreclosure. Courts generally frown on Chapter 20's, though not
all do.
22. Do I have to have a certain amount of debt to file bankruptcy?
No. You may file Chapter 7 regardless of how much or little money you owe,
and you may file Chapter 13 so long as your debt does not exceed certain
dollar amounts pursuant to 11 U.S.C. § 109(e), here, though these amounts
change from time to time. However, if you don't owe very much, your situation
may not warrant filing bankruptcy. Ask your attorney about this.
23. Does my filing bankruptcy protect a co-signer?
Not usually. The only way to protect a co-signer is to continue to pay the debt
after the bankruptcy is filed (either directly after a Chapter 7 or through the
Plan in a Chapter 13) or have the co-signer file bankruptcy also.
24. What is the typical debtor profile?
People from all walks of life and ages file bankruptcy for various reasons.
According to The Fragile Middle Class: Americans in Debt, Elizabeth Warren,
Harvard Law School, the average age of persons who file bankruptcy is 38;
44% of filers are couples; 30% are women filing alone; 26% are men filing
alone; Persons who file bankruptcy are slightly better educated than the
general population; Two out of three people who file have lost a job; Half the
people who file have suffered serious health problems; Over 91% of people
who file have suffered a job loss, medical event, or divorce; and the states with
the highest bankruptcy rates are Tennessee, Utah, Georgia, and Alabama.
25. Is there anything I can do to get collection agencies to stop calling
me besides filing bankruptcy?
Yes. Collection agencies (which are companies who collect debts owed to
another person or company) must follow certain rules in collecting debts
pursuant to the Fair Debt Collections Practices Act, which is federal law written
in Title 15 of the United States Code. One may send to collection agencies a
letter similar to the sample letter listed below in order to stop harassing phone
calls. However, sending this letter does not mean that the debt is no longer
owed, or that the creditor cannot sue you to collect the debt, but merely
requires the collection agency to follow certain rules in attempting to collect the
debt. Also, it should be noted that this letter is only applicable to collection
agencies, which are companies collecting debts owed to another, and not to the
original creditor if that creditor has undertaken their own collection activities. It
also does not apply to collection agencies which are collecting commercial (i.e.
business-related) debt rather than consumer debt.
The following sample letter is designed to be mailed to a collection
agency by Certified Mail, Return Receipt Requested, with the sender
retaining a copy:
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(Collection Agencies’ name) (Date)
(Collection Agencies’ address)
Via Certified Mail, Return Receipt Requested, Article No. (certified article
number)
Re: (Your name)
(Your account number)
Dear Collection Agency:
Please be advised that while I am not at this time disputing the validity of the
debt on which you are collecting, though I expressly reserve that right for the
future if it becomes applicable, I am hereby exercising my right under federal
law to require you to collect on said debt in a legal fashion and in compliance
with the Fair Debt Collection Practices Act.
Pursuant to 15 U.S.C. 1692c (Fair Debt Collection Practices Act sec. 805(c )) I
am hereby informing you that I wish you, your company, and any and all agents
thereof to cease further communication with me other than as permitted by the
above-cited federal statute. This means that pursuant to 15 U.S.C. 1692c (Fair
Debt Collection Practices Act sec. 805(a)(2)), the only further communications
you are allowed by law to make to me is limited to (1) advising me that your
further collection efforts are being terminated, (2) that you may invoke special
remedies which are ordinarily invoked by your company, and (3) to notify me
that you intend to invoke a special remedy. According to the same statute, you
also may not contact my spouse, parent, guardian, executor, administrator,
employer, or any other person in connection with the debt.
Also, this letter serves as your notice that it is inconvenient for me, for the
purposes of 15 U.S.C. 1692c (Fair Debt Collection Practices Act sec. 805(a)
(1)), for you to contact me by telephone or in person at any time, and that all
further communications from you to me must be made in writing.
If you contact my spouse, parent, guardian, executor, administrator, employer,
or any other person in connection with my debt, either by mail, in person, by
telephone, or by any other means, or if you contact me by any means other
than by mail, or if you mail me anything other than that which is permitted by law
as described above, I may have the right to pursue sanctions against your
company pursuant to 15 U.S.C. 1692k (Fair Debt Collection Practices Act sec.
813) or any other applicable state or federal law.
Sincerely,
(Your signature)
(Your name printed)
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Copyright © by Joseph A. Ross. All rights reserved.
This website is designed to provide general information only. The information
presented in this site should not be construed to be formal legal advice nor the
formation of an attorney-client relationship. Persons accessing this website are
encouraged to seek independent legal counsel for guidance regarding their
individual circumstances.
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We are a debt relief agency. We
help people file for bankruptcy
relief under the Bankruptcy
code. The services and/or
benefits we provide are with
respect to Title 11 of the United
States Code.
help people file for bankruptcy
relief under the Bankruptcy
code. The services and/or
benefits we provide are with
respect to Title 11 of the United
States Code.
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