What Is Bankruptcy?
Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.
A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems. Bankruptcy is a difficult and personal decision, but it is a choice that may help if you are facing serious financial problems. Although bankruptcy can help with some financial problems, its effects are not permanent. If you choose bankruptcy, you should take advantage of the fresh start it offers and then make careful decisions about future borrowing and credit, so you won't ever need to file for bankruptcy again!
Peak Home Loans can help to refinance your home with a bankruptcy, a foreclosure, good credit, fair credit, poor credit, and bad credit. We offer bankruptcy refinance and mortgages with any credit. Click here to learn how. Refinancing with a bankruptcy is our specialty.
What Can Bankruptcy Do for Me?
Bankruptcy may make it possible for you to:
Eliminate the legal obligation to pay most or all of your debts. This is called a "discharge" of debts. It is designed to give you a fresh financial start.
Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
Restore or prevent termination of utility service.
Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
What Can't Bankruptcy Do for Me?
Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
Eliminate certain rights of "secured" creditors. A "secured" creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.
Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.
Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
Discharge debts that arise after bankruptcy has been filed.
If the creditors have stopped asking and started threatening. You’re worrying that the car might not be in the driveway when you go out in the morning. Maybe your mortgage holder has used the “f” word: foreclosure. How can you save your assets?
Bankruptcy is a federal legal process for debt management available to most individuals and businesses. Successfully completing a bankruptcy case allows individuals and businesses to either eliminate or reorganize most of their debt. The bankruptcy laws are contained in 11 U.S.C. Sec. 101 et seq.
Peak Home Loans can help to refinance your home with a bankruptcy, a foreclosure, good credit, fair credit, poor credit, and bad credit. We offer bankruptcy refinance and mortgages with any credit. Click here to learn how. Refinancing with a bankruptcy is our specialty.
How will the new bankruptcy laws effective October 17, 2005 affect me? The New Bankruptcy Laws Will Affect Your Rights!
On April 20, 2005 President Bush signed into law a new set of bankruptcy statutes. Some of the provisions took effect immediately, but most changes will become effective on October 17, 2005.
Under the new bankruptcy law, it may be more difficult for some people to eliminate their debts through Chapter 7. But, some people will benefit by waiting to file until the new law goes into effect...
When should I consider bankruptcy?
You should consider bankruptcy when:
* you've been unemployed for several months and your prospects are questionable;
* it becomes evident you cannot pay your bills as they come due;
* you start considering using your VISA card to pay your MasterCard;
* you receive a letter from your mortgage company threatening foreclosure;
* you fear your car will be repossessed;
* your car HAS been repossessed;
* you're considering a home equity loan to consolidate your bills;
* you're considering cashing in your 401(k) or your IRA;
* you're worried about protecting other assets;
* a creditor is threatening or has filed suit;
* you have significant IRS debt;
* you just can't abide any more collection letters and phone calls;
Many people are under the mistaken impression that bankruptcy will strip them of their assets. In the vast majority of cases, however, those who file bankruptcy keep all of their assets. In fact, assets like your home, car, pension fund and IRA are protected from your creditors if you file bankruptcy. Therefore, it is vital that you consult with a bankruptcy attorney before selling, transferring or cashing in any assets.
Are there alternatives to bankruptcy?
Of course. Some people have successfully managed their finances through nonprofit credit counseling centers like Consumer Credit Counseling Services of Greater Dallas, Inc. Among other services, CCCS intervenes with creditors to set up more manageable payment plans. Creditor participation in CCCS payment plans is entirely voluntary. CCCS cannot guarantee that a creditor will accept a payment proposal or protect you from further collection efforts.
Sometimes a payment plan can be negotiated directly with a creditor. Obtaining loan extensions, compromises and workout agreements require negotiation skills and experience. These alternatives may alert your creditors to the existence of nonexempt property that the creditor could reach and can involve considerable expenses.
You also have the option of doing nothing, which may entail certain risks. Creditors can obtain court judgments on the debt and then attempt to collect the judgment. Some states allow creditors to satisfy their judgments out of the debtor’s property, including bank accounts and certain personal property. If you sell real property after the judgment is filed, you will most likely have to satisfy the judgment out of the proceeds of the sale. Judgment creditors cannot, however, foreclose on your homestead to satisfy the judgment, and they cannot garnish your wages.
Peak Home Loans can help to refinance your home with a bankruptcy, a foreclosure, good credit, fair credit, poor credit, and bad credit. We offer bankruptcy refinance and mortgages with any credit.
Click here to learn how. Refinancing with a bankruptcy is our specialty.
What kinds of bankruptcy are available?
There are five kinds of bankruptcy:
Chapter 7 – also known as “straight” bankruptcy
Chapter 9 – reorganization for municipal entities
Chapter 11 – reorganization for businesses and for individuals with excessive debt
Chapter 12 – reorganization for family farmers
Chapter 13 – reorganization for individuals with a regular source of income
Most individuals and couples file either a Chapter 7 case or a Chapter 13 case.
How long does a bankruptcy case last?
A Chapter 7 straight bankruptcy case usually lasts 6 months or fewer, unless the case is complicated.
A Chapter 13 case will usually last from 3 to 5 years, depending on the repayment plan approved by the court.
Do I need an attorney to file bankruptcy?
No, but the process can be intimidating, and complications can cause dire results. The bankruptcy courts and trustees are not allowed to give legal advice and can only provide limited assistance in completing the extensive paperwork that must be filed. In addition, creditors may initiate litigation in order to settle their claims. It is very difficult for a person unfamiliar with bankruptcy law to consider all possible outcomes and achieve the desired result.
An attorney will help you evaluate which type of case is best for you. Factors to consider include the type of debts you owe (e.g., secured, unsecured, taxes, non-dischargeable, contingent) owe and type of property you own (exempt, nonexempt, real, personal).
What is a Chapter 7 bankruptcy?
The bankruptcy laws are designed so that all debtors emerge from bankruptcy with sufficient assets to make a fresh start. These assets are called exempt property. Chapter 7, also known as “straight” bankruptcy, requires that you turn over all nonexempt property to a bankruptcy trustee, who then converts it to cash for distribution to your creditors. In most cases, you then receive a discharge of all dis-chargeable debts.
Who can file a Chapter 7 bankruptcy petition?
Almost any individual, partnership, or corporation can file a Chapter 7 bankruptcy petition. The debtor must reside, have a domicile, a place of business, or property in the United States. You can file a Chapter 7 bankruptcy petition regardless of whether or not you are employed.
If you filed bankruptcy before, your right to a discharge may be affected. An attorney can help you evaluate your right to file another case.
What is a Chapter 13 bankruptcy?
When you file a Chapter 13 case, you agree to pay over to the Chapter 13 trustee a portion of your disposable income each month for 3 to 5 years. The disposable income is the money you have left over after your necessary expenses are paid. These payments are used to pay your creditors. Usually, your assets are not affected. Only your future income is paid to the trustee.
Under certain circumstances, it will not be necessary to pay your creditors the entire debt owed. Chapter 13 provisions allow for a discharge of certain debts before they are paid in full. It may also be possible to renegotiate a more favorable loan rate or payment amount on car payments or other secured debt.
Who can file a Chapter 13 bankruptcy petition?
Individuals may file Chapter 13 bankruptcy petitions if they:
(1) reside, have a domicile, a place of business, or property in the United States, or a municipality;
(2) have a source of regular income; and
(3) on the date the petition is filed owe less than $290,525* in non-contingent, liquidated, unsecured debts and less than $871,550* in non-contingent, liquidated, secured debts.
*These amounts are subject to change.
Corporations and partnerships may not file a Chapter 13 bankruptcy petition.
If you filed bankruptcy before, your right to a discharge in a succeeding case may be affected. An attorney can help you evaluate your right to file another case.
Peak Home Loans can help to refinance your home with a bankruptcy, a foreclosure, good credit, fair credit, poor credit, and bad credit. We offer bankruptcy refinance and mortgages with any credit. Click here to learn how. Refinancing with a bankruptcy is our specialty.
Does a spouse have to file bankruptcy, too?
No. But, not in community debt states - which most states are. Generally, each spouse is liable for the other’s debts. Therefore, if one spouse discharges debt through bankruptcy, the creditor may turn to the other spouse for payment.
Will the bankruptcy stop bill collectors from calling?
Yes. A provision of the Bankruptcy Code called the automatic stay prevents bill collectors from taking any action to collect debts. Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts.
After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling when you inform them that you filed a bankruptcy petition and supply them with the "docket number" for the case. In some cases, you or your attorney should contact the creditor immediately after filing the bankruptcy petition, especially if a lawsuit is pending or if repossession of cars or personal property is imminent.
A creditor may be liable for court sanctions if it continues to use collection tactics once informed of the bankruptcy.
Once the bankruptcy is filed, your attorney will assume all responsibility for communicating with your creditors.
Will bankruptcy stop a wage attachment?
Yes, including IRS wage attachments.
Will bankruptcy stop a foreclosure proceeding or prevent repossession of my car?
Temporarily, yes. However, the lender is entitled to apply to the court for permission to continue foreclosure proceedings or repossession. This is called requesting relief from the automatic stay. If you file a Chapter 7 case, you may be able to arrange with the creditor to catch up the payments. If you file a Chapter 13 case, the past due payments can be included in the Chapter 13 and paid over time. Often, a Chapter 13 is the better choice for debtors facing foreclosure or repossession.
If my car has already been repossessed, can bankruptcy help me get it back?
Yes. But you must act quickly. If you file a Chapter 13 case and your car has not yet been sold by the creditor, the creditor will be required to return the car to you.
Will bankruptcy stop an eviction, or unlawful detainer, action?
Sometimes it will, but it is usually not a good idea. The owner is entitled to possession of his property and at best you will only gain a short delay. Filing a Chapter 7 solely to avoid an eviction might be considered an abuse of Chapter 7. If the Bankruptcy Court finds that this is true, then the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you. If, however, you are substantially behind in your other bills, and eviction is only one of your financial concerns, a bankruptcy attorney may be able to help you.
Will bankruptcy stop a lawsuit?
Bankruptcy stops most civil lawsuits, including most IRS proceedings. Divorce and criminal cases are rarely stopped because of a bankruptcy case.
Will bankruptcy remove a lien?
Under some circumstances, once the bankruptcy proceedings have started, a special motion can be filed to remove certain liens.
Peak Home Loans can help to refinance your home with a bankruptcy, a foreclosure, good credit, fair credit, poor credit, and bad credit. We offer bankruptcy refinance and mortgages with any credit. Click here to learn how. Refinancing with a bankruptcy is our specialty.
Is it true I can cancel all debts by filing bankruptcy?
The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond her ability to repay the debt should receive a fresh start through the discharge of debts. A discharge is a release from personal liability for certain debts.
However, some debts must still be paid. These are known as non-dis-chargeable debts. Generally speaking, they include taxes less than three years old; spousal and child support; debts arising out of willful misconduct or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; non-dis-chargeable debts from a prior bankruptcy; student loans; criminal fines and penalties.
In many cases, debts that cannot be discharged in a Chapter 7 case may be discharged in a Chapter 13 case.
Secured debts also may be discharged, but the secured creditor is entitled to get back the collateral or its value. Debtors can avoid this result by continuing to pay their secured loans during bankruptcy and entering into an agreement with the creditor to continue paying the note after the bankruptcy is over, if necessary.
Must I list all my creditors?
Yes, even debts owed to relatives and friends and debts you intend to repay after bankruptcy. If you intentionally omit a creditor from your schedules, you have committed perjury. However, sometimes a creditor is overlooked or not known to exist at the time the schedules are filed. Generally, you may amend your schedules at any time during the bankruptcy proceeding to add an additional creditor.
If you accidentally omit a creditor, and the creditor does not otherwise learn about your bankruptcy case in time to participate in the proceeding, the debt owed to that creditor might not be discharged.
If I am divorced, will bankruptcy eliminate my obligation to pay community debts?
In general, you will be discharged from all dis-chargeable community debts. In some circumstances you may still be liable to your spouse if she or he pays the debt.
Is alimony dis-chargeable?
Alimony, maintenance and child support payments generally are not dis-chargeable. A few technical exceptions exist. In addition, the Bankruptcy Code provides that certain other divorce related obligations, such as payments to others, hold harmless provisions and property settlement obligations are not dis-chargeable if the debtor has the ability to pay them and the detriment to the spouse outweighs the benefit of the discharge to the debtor. In order to take advantage of these provisions, the spouse must obtain an order from the bankruptcy court declaring the debt non-dis-chargeable.
Can I discharge student loans?
Generally, student loans are not discharged in bankruptcy. There are two exceptions to this general rule.
1. The student loan may be discharged if it is neither "insured or guaranteed by a governmental unit" nor "made under any program funded in whole or in part by a governmental unit or nonprofit institution."
2. The student loan may be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents."
Whether an exception applies depends on the facts of the particular case and may also depend on local court decisions. If a student loan falls into one of the two exceptions, discharge of the loan may not be automatic. You may have to seek a bankruptcy court order declaring the debt discharged.
Can I dis-charge taxes?
In most instances, taxes owed to the federal government are not discharged unless they are more than 3 years old. If you have employees and owe income tax on your employees’ earnings, those taxes are never discharged. Interest and penalties on those taxes may be discharged under certain circumstances.
Taxes that are not discharged in a Chapter 7 case can often be paid through a Chapter 13 plan.
Can I keep any credit cards?
Under some circumstances you may be able to keep some credit cards if the creditor agrees. There are many factors that must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt.
Will bankruptcy affect my job?
Bankruptcy petitions are public records. However, under normal circumstances, it will not know you filed a bankruptcy petition. If your employer or landlord is a creditor it must be listed as a creditor on the bankruptcy paperwork and receive notice of the bankruptcy proceeding. In some cases, Chapter 13 debtors are required to make payments through wage garnishment and the employer will learn about the bankruptcy.
Your employer cannot fire you for filing bankruptcy. The Bankruptcy Code prohibits employers from discriminating against you because you filed a bankruptcy petition or because you failed to pay a dis-chargeable debt.
Do I have to list all of my assets?
Yes. Your assets include your personal property, any real estate you have an interest in, your right to receive something from a contract, debts that people owe you, and many other types of property.
If you knowingly and fraudulently conceal an asset from the court, you have committed a felony and can be fined or imprisoned or both. In addition, the court can deny your discharge, or dismiss or convert your bankruptcy case.
Peak Home Loans can help to refinance your home with a bankruptcy, a foreclosure, good credit, fair credit, poor credit, and bad credit. We offer bankruptcy refinance and mortgages with any credit. Click here to learn how. Refinancing with a bankruptcy is our specialty.
What happens to my personal property, real property and other assets?
You are required to file a schedule with the court describing all of your assets. Certain property is either excluded from the bankruptcy or exempt, and you will be able to keep that property. Often, all of your assets can be protected.
If you have property that is not exempt, that property or its value, must be turned over to the bankruptcy trustee, who will sell it and distribute the proceeds to your creditors.
In some states, debtors may choose the exemption list or the Federal exemption list. Each of these lists allows the debtor to exempt an amount of real and personal property, but the lists are not identical. For instance, some states allow a debtor to exempt a homestead without regard to its value, but the Federal list allows only a limited homestead exemption. On the other hand, the Federal list may allow you to exempt some property, like cash, that some states do not provide for. Which one you use depends on the nature of your property and the debt you owe on that property. An attorney can help you analyze your assets and debts to determine which exemption list is right for you.
In many cases you can retain your home and automobile. If you are behind in making payments on a loan secured by a home or automobile or the home or automobile has equity in excess of what you are allowed to exempt, you might consider filing a Chapter 13 petition. You can then develop a plan for repaying your creditors without necessarily liquidating assets.
Even in bankruptcy, the secured creditor is entitled to get back the collateral or its value. Debtors can avoid this result by continuing to pay their secured loans during bankruptcy and entering into an agreement with the creditor to continue paying the note after the bankruptcy is over, if necessary.
Will I have to go to court?
About 4 to 6 weeks after filing the bankruptcy petition, you will have to attend a hearing presided over by a bankruptcy trustee. This hearing is called the First Meeting of Creditors. The trustee is not a judge, but an individual appointed to oversee bankruptcy cases. At the First Meeting of Creditors the trustee will ask you questions under oath regarding the content of your bankruptcy papers, your assets, debts and other matters. Creditors will also be permitted to ask questions, although in the majority of cases creditors do not attend the First Meeting of Creditors. After the initial meeting you normally will not return to court. However, if a creditor or the trustee files a motion or an adversary action you may have to appear in court with your attorney.
What should I do to prepare for filing bankruptcy?
First, you should consult with an attorney. An attorney can help you plan for the bankruptcy, decide when to file a bankruptcy petition, or even avoid filing for bankruptcy. If you decide to file a bankruptcy petition:
Stop using your credit cards. If you charge up your credit cards knowing that you’re going to file bankruptcy, the debt may not be discharged. Also luxury purchases over $1,150 and cash advances totaling more than $1,150 within 60 days before the bankruptcy filing are not dis-chargeable.
Don’t transfer your assets to friends, family and business associates to protect the assets from your creditors. The transfer may be considered a fraudulent conveyance. If it is, you may lose both the property and your right to a bankruptcy discharge. Instead, consult an attorney. There may be legitimate ways to save the property.
Don’t destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result.
Carefully choose the creditors you pay. Some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away. Your attorney should advise you on what debts should and should not be paid while you prepare to file a bankruptcy petition.
What if someone who owes me money files bankruptcy?
If you are listed as a creditor in the case, you will receive notice of the bankruptcy from the court in which the case was filed. Review the notice carefully, as it will tell you whether or not you should file a claim in the case. If the notice indicates that you should not file a claim, the court does not expect that there will be any money to pay to creditors. If the notice instructs you to file a claim, generally you must file a proof of claim in order to be paid. Be mindful of all deadlines for filing claims. If you fail to file a claim by the date indicated on the notice, your rights will be significantly affected.
It is not necessary to hire an attorney to file a claim for you. You can obtain a proof of claim form from any bankruptcy court and most office supply stores. Fill out the form completely and attach any supporting documents you have that would help prove that the debtor owes you money. These may include loan agreements, promissory notes, IOUs, credit applications. In addition, you must also attach copies of statements, account ledgers or computer printouts showing how much the debtor owed you as of the date the bankruptcy was filed. Do not include any interest that accrued on the debt after the date the case was filed unless you have a security interest in personal property of the debtor.
You can file the claim in person, or you can send the claim to the address indicated on the notice. Be sure to include a copy of the claim and a stamped self-addressed envelope so that the court can return a date stamped copy to you. Also send copies to the debtor’s attorney and to the trustee.
If the debtor or the trustee disagrees with your claim, they will file an objection to it and the objection will be set for a hearing. If you choose to contest the objection, it is strongly advised that you contact an attorney to help you protect your rights. An attorney familiar with bankruptcy law will understand your options and will help you to maximize your return.
My employer filed bankruptcy. How do I get paid?
If you are a union employee, contact your union. Often unions will represent the employees in the bankruptcy proceeding. If not, file a proof of claim for any unpaid wages, vacation benefits, etc. owed from before the date of filing. Up to $4,000 (this amount will increase periodically - make sure you check a current version of the Bankruptcy Code) of the amount owed to you for services performed within 90 days of the date of the bankruptcy, or the date your employer closed its doors, whichever occurred first, is a "priority claim" under the Bankruptcy Code. The rest of the amount owed you is a general, unsecured claim. Priority claims will get paid before general unsecured claims.
Peak Home Loans can help to refinance your home with a bankruptcy, a foreclosure, good credit, fair credit, poor credit, and bad credit. We offer bankruptcy refinance and mortgages with any credit. Click here to learn how. Refinancing with a bankruptcy is our specialty.
How can I learn more about bankruptcy?
In addition, the Administrative Office of the US Courts publishes a booklet called “Bankruptcy Basics.” You can read or print this booklet online by clicking here.
Local public law libraries also have information that will help you learn more about the process.
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