BANKRUPTCY
- What is Bankruptcy? Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay a portion of them under the protection of the bankruptcy court. Bankruptcy provides a “fresh start” that enables individuals or businesses to start over without the burden of debt. It also gives people who are owed money – the creditors – a fair share of the money that the debtors can afford to pay back.
- Are there any alternatives to filing bankruptcy? Before making a decision to declare bankruptcy, you may want to consider other alternative options. But be careful though – if your financial problems are long term, or if all your creditors will not agree to work with you, bankruptcy may be the best way for you to get out from under a big debt load and get a fresh start. No matter what course you take, you should see an attorney to figure out the best solution for your situation.
- How will I live with the embarrassment of filing for bankruptcy? Bankruptcy has become a common and accepted way to take action to solve your problems. As your financial situation improves, you can reestablish credit, and get on with your life. No one really looks forward to filing bankruptcy because most people really want to pay their debts if they can. But consider the alternative: the financial stress caused by insurmountable debt can take a huge toll on your life at work and at home; creditor calls at all hours, lawsuits, pressure from the IRS. It can ruin your health and family life. Bankruptcy can provide a fresh start. If you don’t file because you are worried about being embarrassed, you could be making a big mistake.
- Once I decide to file bankruptcy, what should I do to prepare? Once you decide to file, every step you take is watched closely. To make the process go smoothly, it is important that you obey the rules of the bankruptcy court. You should work closely with an attorney to make sure you stay within the guidelines established by the court and the law.
- After I file, who notifies the creditors? As part of your bankruptcy petition, you provide a list of creditors. After the bankruptcy petition is filed, the court mails a notice to all the creditors listed in the schedules. If you don’t want to wait for the court to send notice, your attorney can notify creditors for you.
- Who deals with bill collectors? This is one of the things that your attorney can provide for you once you file. Will bill collectors stop calling once I file? Once you file you are granted an “automatic stay.” This means creditors have to stop calling. The court or the bankruptcy trustee mails a notice to all the creditors you have listed notifying them of your bankruptcy petition. If creditors continue to call, you should refer them to your attorney. If you have any lawsuits or garnishments pending, you should notify your attorney, who will contact those creditors immediately. If creditors persist in calling you once you have filed, keep a record of the time and substance of the call and contact your attorney immediately. Continuing collection efforts violates bankruptcy laws and can subject the bill collector to substantial sanctions.
- Can I keep some assets out of the bankruptcy proceeding? You must disclose all your assets. If you knowingly conceal an asset the court could dismiss your bankruptcy, and you could face serious penalties, including fines and imprisonment.
- Wouldn’t it be cheaper to work with a debt counselor, paraprofessional or consolidation service? Working with a debt counselor can make sense in certain circumstances, but be sure you are not setting yourself up for failure. Make sure you understand the service’s fee structure, and their ability to work effectively with your creditors.
- What is the difference between Chapter 7 and Chapter 13? Generally speaking, a Chapter 7 is shorter and less expensive and is intended to discharge general unsecured obligations. A Chapter 13 is longer and generally more expensive. A Chapter 13 requires payments over a period of time, not greater than 60 months. In most cases the decision between filing a Chapter 7 and a Chapter 13 becomes a factor of the results of four tests: What kind of net income do you have after you have paid your living expenses and before you address unsecured debt service? Do you own any non-exempt assets? Whether your financial problems are a result of secured and/or priority obligations or whether your problems are a result of unsecured debts? The results of the “means test” as implemented by the Bankruptcy Reform act in October 2005. This test is complicated to explain, but is intended to remove much of the discretion from bankruptcy judges in the determination of whether you can afford to pay “something” back to the creditors. As a practical matter, although complicated to implement and explain, the means test has little impact on the type of relief available to individuals. You should consult with an attorney to discern what alternative best suits your financial circumstances.
- Will my bankruptcy appear on my credit reports? Yes. Your bankruptcy can be listed in credit reports for a period of up to 10 years. Chapter 7 filings are normally reported for 10 years and Chapter 13 filings for 10 years.
- How can I re-establish my credit rating after bankruptcy? The best way to rebuild your good credit over time is by making payments every month without fail. A bankruptcy followed by a good payment record is much more desirable than a continued history of unpaid bills. Creditors also may be willing to work with you because you are prohibited by law from filing Chapter 7 bankruptcy again for a significant period of time. Other ways to renew credit you may want to consider are: You can reaffirm a debt owed to a creditor based on an agreement made during bankruptcy. You can get secured debt based upon providing collateral. You can obtain credit using a co-signer. Normally, two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others with the same financial profile, who has not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.
- After I file, can I obtain new credit? Yes. The decision of whether to extend you credit belongs to each particular lender. While some potential creditors will reject your application for credit simply because you have a bankruptcy on your record, others will grant you credit because you have no other debts left and have the ability to pay a new loan.
- What assets do I have to include in the bankruptcy? You must disclose any and all assets you own, have possession of, or have a right to posses. Honest disclosure is extremely important. Keep in mind that simply because you must disclose the assets does NOT necessarily mean you will lose those that are reasonable and necessary.
- What are exempt assets? Generally speaking, exempt assets are those you retain when you file a Chapter 7. In a Chapter 7, non-exempt assets are surrendered to a trustee, in a Chapter 13 non-exempt assets may add to the total you must repay. Both the Federal Government and the State of Michigan have defined exempt assets. In most cases, you may choose federal and Michigan exemptions.
- Can I keep my home if I have a mortgage? One of the biggest concerns you may have in considering bankruptcy is the possibility of losing your home. If you are behind on your mortgage payments, you will almost certainly lose your house if you file a Chapter 7 bankruptcy. Your mortgage lender will ask the bankruptcy court to lift the automatic stay to begin or resume foreclosure proceedings. In a Chapter 7 bankruptcy in most cases whether or not you keep your home depends on whether you pay your mortgage, keep the house insured and pay property taxes. In a Chapter 13 bankruptcy, you will not lose your house if you immediately resume making regular payments under your mortgage, and you repay your missed mortgage payments through your Chapter 13 plan.
- Will bankruptcy stop a foreclosure proceeding or eviction? Filing a Chapter 7 will stop a foreclosure or eviction temporarily, but a creditor can usually get the court’s permission to proceed fairly quickly. Filing a Chapter 13 will stop foreclosure and allow a mortgage arrearage to be cured through the Chapter 13 repayment plan. Keeping your home is one of the most critical procedures you will face in bankruptcy, and if you are a homeowner you should see an attorney, especially if you are in foreclosure.
- Will I lose my car if I file for bankruptcy? Whether you keep or lose your vehicle In Chapter 7, bankruptcy is a function of two factors. Can you maintain required payments (loan payments and insurance)?
- Does the value of your interest in the car (a.k.a. equity) exceed allowed exemptions? In Michigan, debtors rarely lose a vehicle due to too much equity. In a Chapter 13, the issue is less difficult. You may keep the car, but you must keep it insured and pay for it directly to the creditor or through the plan of reorganization.
- Are pension plans, 401(k) plans and IRA accounts protected? Pension and 401(k) plans are usually exempt, but there are some exceptions. If you have a retirement plan, you should consult with an attorney. Do some debts have priority over others?
- Are income taxes dischargeable? The following income taxes are priority claims and are not dischargeable: Taxes where the returns were due within three years of the bankruptcy, and Income taxes that were assessed within 240 days (about 8 months) before the bankruptcy. If you file Chapter 13, your plan must provide for payment in full of these taxes. Penalties assessed on the taxes are not priority claims however, and can be reduced substantially. Once you have filed, the tax debt does not continue to accrue interest.
- Will bankruptcy stop a wage garnishment? Yes, unless it is a garnishment for ongoing alimony, spousal maintenance or child support.
- Will bankruptcy stop a judgment? Yes. Most civil judgments are stopped by bankruptcy.
We are a debt relief agency. We help people file for bankruptcy protection under the Bankruptcy Code.