Bankruptcy FAQs

WHAT EXACTLY IS BANKRUPTCY? WILL IT WIPE OUT ALL MY DEBTS?

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as “liquidation” (Chapter 7) or “reorganization” (Chapter 13). Under a Chapter 7 bankruptcy, you ask the bankruptcy court to wipe out (discharge) the debts you owe. Under a Chapter 13 bankruptcy, you file a plan with the bankruptcy court proposing how you will repay your creditors. You must repay some debts in full; others may be repaid only partially or not at all, depending on what you can afford.

When you file either kind of bankruptcy, a court order called an “automatic stay” goes into effect. The automatic stay prohibits most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.

Certain debts cannot be discharged in bankruptcy; you will continue to owe them just as if you had never filed for bankruptcy. These debts include back child support, alimony, and certain kinds of tax debts. Student loans will not be discharged unless you can show that repaying the debt would be an undue burden, which is a very tough standard to meet. And other types of debts might not be discharged if a creditor convinces the court that the debt should survive your bankruptcy.

HOW DO I KNOW IF I SHOULD FILE PERSONAL BANKRUPTCY?

Are you here because you are being sued? A bankruptcy will stop a lawsuit immediately and prevent your creditors from placing a lien on your home or garnishing your hard-earned wages.
Are you behind on your mortgage or car payments? Are you afraid your home could be foreclosed on, or your car repossessed? If so, Chapter 13 bankruptcy can prevent the foreclosure or repossession from proceeding, allow you to consolidate your mortgage arrears or automobile balance, and make payments on those debts over time through a payment plan. As long as you can make these payments, Chapter 13 can allow you to keep these items. If you wish to surrender the house or car, Chapter 7 bankruptcy can eliminate any remaining balance owed on them after foreclosure or repossession.
Do credit cards or medical bills have you so deep in debt that it is hard for you to save for the future? If you are only paying the minimum payment on the credit card bills from month to month (generally from two to three percent of the outstanding balance), and the interest rate is only 15%, you will take about 20 years to pay off a $10,000 debt. Do you really want to be in the same financial situation for the next twenty years? Chapter 7 bankruptcy can provide you with a fresh start that you are entitled to under the law and get you out of debt NOW.

WILL I LOSE ANYTHING IF I FILE FOR PERSONAL BANKRUPTCY?

Generally, you may file a bankruptcy and retain all of your personal belongings, including your house, your car and all household goods.

Bankruptcy laws called “exemptions” allow you to keep certain assets like household goods, and even home and car equity. The attorneys at Brownstone Law Group know how to properly claim all of the exemptions you are entitled to, and will make sure that all of your belongings are protected before filing your case.

The reality is that most of us do not have significant equity in our homes or cars. If you have a mortgage against your home or a loan against your car, you may owe more than they are worth. So, the bankruptcy court wouldn’t want to sell your house or car, because after sale there would be no money left over to make a distribution to your creditors. The same goes for your personal property and household goods. Even if your property is worth more than what is owed on it, or is paid in full, in most cases we can use exemptions to protect these items.

You may be more at risk of losing property if you don’t file bankruptcy. Without the protection offered by bankruptcy, creditors can sue you and attach your bank accounts, garnish your wages, and attach and seize your property. As a result, you may miss rent, mortgage or car payments, making it difficult to provide even your most basic necessities.

DOES MY SPOUSE HAVE TO FILE JOINTLY WITH ME?

If all or most of the debts are in your name only, your spouse may not have to file. Creditors usually cannot pursue a non-filing spouse, unless he or she is legally a co-debtor on the debt. Additionally, the bankruptcy should not be reflected on the non-filing spouse’s credit report.

WHAT IS THE DIFFERENCE BETWEEN CHAPTER 7 AND CHAPTER 13 BANKRUPTCY?

In Chapter 7 bankruptcy, you ask the bankruptcy court to discharge most of the debts you owe. In exchange for this discharge, the bankruptcy trustee can take any property you own that is not exempt from collection (see below), sell it, and distribute the proceeds to your creditors.

In Chapter 13 bankruptcy, you file a repayment plan with the bankruptcy court to pay back all or a portion of your debts over time. The amount you’ll have to repay depends on how much you earn, the amount and types of debt you owe, and how much property you own.

You lose no property in Chapter 13 bankruptcy, because you fund your repayment plan through your income. In Chapter 7 bankruptcy, you select property you are eligible to keep from a list of state exemptions. Although state exemption laws differ, states typically allow you to keep these types of property in a Chapter 7 bankruptcy.

WHICH SHOULD I USE–CHAPTER 7 OR CHAPTER 13 BANKRUPTCY?

If you meet the eligibility requirements for both types of bankruptcy, then you can choose the type of bankruptcy that makes the most sense for your situation. However, you may not have a choice.
Under the new bankruptcy law, filers whose incomes are higher than the median income for a family of their size in their state may not be allowed to file for Chapter 7 bankruptcy if their disposable income, after subtracting certain allowed expenses and required debt payments, would allow them to pay back some portion of the unsecured debt over a five-year repayment period.

Also, if you have secured debts of more than $1,149,525 and unsecured debts of more than $383,175, for example, then you cannot use Chapter 13 bankruptcy.

Most people who file for bankruptcy choose to use Chapter 7, if they meet the eligibility requirements; Chapter 7 is a popular choice because, unlike Chapter 13, it doesn’t require filers to pay back any portion of their debts.

However, Chapter 13 might be a better choice, depending on your situation. For example, if you are behind on your mortgage and want to keep your house, you can include your missed payments in your Chapter 13 plan and repay them over time. In Chapter 7, you would have to make up the whole past due amount right away – and you might lose your house, if your equity exceeds the exemption amount available to you.

WHEN DO I GET RELIEF FROM CREDITOR HARASSMENT?

Immediately! As soon as you come into our office, we will give you a client record number and you will then refer all future creditor calls to your bankruptcy attorney at the Brownstone Law Group. We will advise you to stop making credit card payments and refer any creditor calls to us immediately. Collection agencies are not allowed to harass you, or even call you once they know we are representing you. If they do, we have attorneys who can sue them for harassing you!

WILL I BE ABLE TO RENT AFTER I FILE PERSONAL BANKRUPTCY?

There are typically over a million bankruptcies filed each year in the United States. Common sense will tell you that these people are not all living on the street. If you are presently renting a home or apartment, usually your present landlord will renew your lease without running an updated credit report, and may not even know you filed a bankruptcy. If you are applying for a new lease, you may be asked to explain the circumstances that led to your blemished credit history and bankruptcy filing. Remember that it is the blemished credit report, not necessarily the bankruptcy that will reflect poorly on your application. If you are already having difficulty making payments to your creditors, the credit damage may already be done. In those cases, bankruptcy can actually help to improve your credit score and your ability to obtain a lease. You see, following a bankruptcy, you will have little or no outstanding debt; so you may appear to be a better credit risk than other applicants who have lots of outstanding debt.

CAN I GET CREDIT AFTER FILING PERSONAL BANKRUPTCY?

The fact that you filed a bankruptcy can legally be listed on your credit report for up to 7 to 10 years, depending on which chapter of bankruptcy you file. However, you can begin to reestablish your credit immediately after your case ends. Remember that “credit” is your ability to borrow money. Lenders consider many factors while determining whether to loan you money, but most importantly, they consider your debt-to-income ratio.

You are probably visiting this site because you already have more outstanding debt than you have the ability to pay. So, arguably, you already do not have credit. Filing bankruptcy eliminates most, if not all of your debts, thereby reducing your debt-to-income ratio, which can improve your ability to borrow money in the future.

Some financial institutions actively solicit business from people who have filed. You see, lenders are in business to make money by lending you money and charging you interest. They look to minimize their risk by offering loans to consumers with the ability to repay those loans. If you have lots of other debts in the way, you look like a high risk borrower. Once you have a clean slate and no other debts to prevent repayment of your new loan, you look like a much better credit risk.

WHO KNOWS ABOUT MY PERSONAL BANKRUPTCY CASE?

The only parties that receive notice of the bankruptcy are your creditors and the bankruptcy court. Your employer will not be notified of the bankruptcy unless your employer is also a creditor. Bankruptcy filings are public record, so anyone who wants to find out could determine that you had filed. Generally, however, only you and your creditors will know about the bankruptcy. Just in case, strict anti-discrimination laws are available to protect you from employment discrimination if your employer takes any action against you because of your filing.

Schedule Your Free Bankruptcy Consultation Today!

We offer a completely free, confidential consultation where you can learn about your Debt Relief options and if Bankruptcy may be of benefit to you. Call us today at (888) 853-8871 to schedule your free consultation.

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