Bankruptcy FAQ's
As you consider the many possible advantages and disadvantages of seeking Bankruptcy Relief at this time, consider the following:
1) bad things [divorce, illness, unemployment, reduced work hours, auto accidents, etc.] happen to good people
who do not want to get into debt or use credit cards;
2) obtaining Bankruptcy Relief enables a debtor to have a "fresh start";
3) for many people, financial management means making sure to pay credit card payments on time, avoid late fees, transferring balances from a higher interest rate card to a lower one, not using funds for improvement to life, such as being able to afford medications or medical treatment, having money for retirement, college, or a more reliable vehicle; and
4) seeking bankruptcy should be a last resort because if there were to be another catastrophic event causing financial distress, a debtor must typically wait before again seeking bankruptcy protection.
1. WHAT IS BANKRUPTCY?
2. CAN BANKRUPTCY HELP TAX MATTERS?
3. CAN CO-SIGNERS BE PROTECTED?
4. CAN CREDITOR HARASSMENT BE STOPPED?
5. CAN HOME FORECLOSURE BE PREVENTED?
6. CAN MONTHLY PAYMENTS BE REDUCED?
7. HOW WILL MY CREDIT BE AFFECTED?
8. LAWSUITS AND JUDGMENTS
9. PROTECTION OF PROPERTY FROM REPOSSESSION
Bankruptcy is a legal procedure designed both to protect an individual or business that can't meet its financial obligations and to protect the creditors involved. To begin the process, proper papers must be filed.
There are specific chapters of the federal bankruptcy law available to individuals.
Proceedings under Chapter 7 (often referred to as "Liquidation) involve having a Court-appointed Trustee taking non-exempt (property that is not protected from creditor), selling the property, and using whatever proceeds result to pay creditors. Many properties are exempt (not subject to creditors' claims) and the end result is that the filing of a Chapter 7 may result in little, if any, of the debtor's property being administered.
Proceedings under Chapter 13 (known as Consumers Reorganization) involve the borrower proposing a plan for repaying a portion of the debt in installments from the borrower's future income.
Chapter 11 of the federal Bankruptcy Code is generally used by corporations and not by consumer debtors, but an individual which operates a business may use this procedure. However, Chapter 11 proce edings are very complex and very expensive.
Chapter 12 of the Bankruptcy Code applies only to those individuals who qualify to be considered Family Farmers or Fisherman.
Most individuals typically file under Chapter 7 and Chapter 13.
Once the bankruptcy proceeding ends, the borrower is no longer liable to make payment of his/her debt. This occurs when the bankruptcy court enters a discharge order in a Chapter 7 case or the borrower has paid the debts due to the credit grantors according to a plan in a Chapter 11 or a Chapter 13 case. In legal terms, the court has discharged the borrower from being obligated to pay the debts. The borrower then starts over again with a clean financial slate, but the record of the bankruptcy will remain on the borrower's credit record for up to ten years. In the days before the "mortgage meltdown" of 2008, or before the term "bailout" entered our vocabulary, the rule of thumb was that someone who had received bankruptcy relief, could obtain a car loan almost right away, [though not necessarily at a good interest rate], would receive pre-approved credit card offers, and a mortgage after 18-24 months. That was based, amongst other things, on the fact that a very, very few people who obtain bankruptcy relief do so a second time. Now, even individuals with excellent credit can not obtain financing, and so the effect of a bankruptcy can not be readily determined.
Bankruptcy may be the best, or only, solution for extreme financial hardship. However, it should be utilized exclusively as a last resort, since it always has long lasting consequences. Be sure to consult a financial expert before resorting to bankruptcy as a means of solving your economic troubles.
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2) CAN BANKRUPTCY HELP TAX MATTERS?
Taxes are debts to a government agency much like debts you might have to individuals and companies. They are different from other debts, however, because the governmental agencies collecting these taxes have greater power over you and your property than other creditors have.
Since the Bankruptcy Code provides for protection to anyone filing bankruptcy, these taxing authorities may have less ability to affect you and your property while you are under bankruptcy protection. The filing of a bankruptcy case may stop collection activity of governmental agencies for the collection of taxes owed. A Chapter 13 bankruptcy can provide for level monthly payment of your tax obligation without additional interest or penalties. Chapter 7 and Chapter 13 can reduce or eliminate certain tax obligations that have been due and payable for more than three years.
Bankruptcy may be the best, or only, solution for extreme financial hardship. However, it should be utilized exclusively as a last resort since it has long lasting consequences. The record of a bankruptcy
remains in your credit files in credit bureaus for as long as ten years. It is recommended to consult a financial expert before resorting to bankruptcy as a means of solving your economic troubles.
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3) CAN CO-SIGNERS BE PROTECTED?
If you file Chapter 7 bankruptcy, the creditor can proceed against your co-signers, according to the terms of the debt agreement. However, if you file a Chapter 13 debt adjustment, a co-signer is protected if the following conditions are met. The debt must be a consumer debt. Also, the debt may not be incurred in the ordinary course of business, and the co-signer cannot benefit from the proceeds of the debt. As long as the debtor is making the required payments under the Chapter 13 plan, the creditor cannot act to collect from the co-signer. The purpose of this provision of Chapter 13 is to allow a debtor to repay the debt without the creditor approaching the co-signer for repayment.
In conclusion, if you file a Chapter 7 bankruptcy, your creditors have the right to immediately demand payment from your cosigners. If, on the other hand, you file a bankruptcy petition and a proposed payment plan under Chapter 13, your creditors cannot collect from your co-signers unless it becomes clear that the Chapter 13 plan will not pay the entire amount owed.
It is important to choose a qualified lawyer or financial adviser to set up your repayment plan. If you are unable to make your payments under Chapter 13, you may still file for Chapter 7 bankruptcy. However, your creditors would then have the right to immediately demand payment from your cosigners.
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4) CAN CREDITOR HARASSMENT BE STOPPED?
There are several strategies for dealing with creditor harassment. First, be as honest as possible. If you explain why your account is in default, you may be able to persuade the creditor to allow you more time for payment or to make other arrangements for payment. But this is not always the case. Some creditors and collection agents are reasonable; others may rely on threats and intimidation.
A second method of stopping creditor harassment is to file for bankruptcy. Though bankruptcy can have long-lasting consequences, it may be the best solution in certain cases. In addition, filing for either Chapter 7 or Chapter 13 bankruptcy will immediately stop creditor harassment. A bankruptcy can be filed before one is sued, after suit is filed, after a final judgment is entered, and even after property of a borrower has been taken by way of execution. At every point in the process, all actions relating to the collection of a debt must IMMEDIATELY STOP. Process servers and sheriffs must stop trying to serve papers, Court proceedings are cancelled, as are depositions, foreclosure sale of a home, hearings, and the like.
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5) CAN HOME FORECLOSURE BE PREVENTED?
If a person gets behind on his or her house pa yments, the creditor may call the loan in default, accelerate the debt, and begin foreclosure proceedings. When a debt is accelerated, the full balance of the note, not just the monthly payments, is due, in full, immediately. This is usually preceded by the creditor's refusal to accept monthly payments.
In the event a creditor begins foreclosure, you will receive a notice of the foreclosure proceeding. Unless the creditor is willing to accept payments to reinstate the loan, you will have to either pay the full balance remaining on the loan, or file bankruptcy for protection to stop the foreclosure. One additional option is to contact HUD for mortgage assistance. Sometimes creditors will agree to stop foreclosure while HUD is reviewing your file.
The beginning of a bankruptcy case, if before the foreclosure sale date, will stop the foreclosure sale from taking place. Under a Chapter 13 plan, you can make regular monthly payments and be given a reasonable period of time to bring your loan payments up to date to save your property.
For more information on foreclosures, consult with an attorney experienced in bankruptcy law.
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6) CAN MONTHLY PAYMENTS BE REDUCED?
If you have unmanageable debt and file a Chapter 7 straight bankruptcy, you will not be required to repay your debts. This affords you a clean slate with which to approach future obligations. Those electing to repay their debts under Chapter 13 must first determine their expected future monthly income or take-home pay. All types of income can be considered, such as wages, commissions, child support, spousal support, social security, workers compensation, unemployment, disability benefits, retirement, and dividends, so long as they constitute regular income.
After determining income, an amount should be set aside to provide for normal living expenses. The amount of income remaining after providing for living expenses is the maximum amount available for debt payments. If you cannot repay your debts in full over three to five years, you may be eligible for a partial repayment plan, or a "best efforts" plan. According to the "best efforts" plan, the idea is to repay as much as you can afford. At the end of the plan, any unpaid plan debts will be discharged. In any event, Chapter 13 almost always reduces your payments to an amount you can afford.
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7) HOW WILL MY CREDIT BE AFFECTED?
How your credit will be affected by filing either a Chapter 7 bankruptcy or a Chapter 13 debt reorganization petition depends on a number of individual factors. One is your credit status today. If your credit is perfect, bankruptcy will have a negative affect on your credit. If your credit is substantially impaired, now or in the near future, filing bankruptcy may be one of the best things you can do to improve your credit. There are two main reasons for this:
1. After filing bankruptcy you are debt free, making your ability to repay any new credit better after bankruptcy than be fore, simply because you have no other debts to pay after declaring bankruptcy.
2. There is no limit to the number of times you can file a Chapter 13, so long as pre-established percentages of debt have been repaid. However, you are limited as to when you can file a Chapter 7 bankruptcy after having already received a Chapter 7 discharge.
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8) LAWSUITS AND JUDGMENTS
The filing of either a Chapter 7 straight bankruptcy or Chapter 13 debt adjustment immediately stops any lawsuits from being filed or judgments being taken against you. If a law suit is pending at the time of such filing, it can go no further. If a judgment has been taken, its enforcement can go no further. If a creditor has a judgment and is garnishing your wages, the garnishment can be stopped. Filing for Chapter 7 straight bankruptcy may relieve you of the obligation to pay the judgment. In a Chapter 13 debt adjustment, you may be able to satisfy the judgment over a period not to exceed five year without paying the judgment off. . If the judgment has created a cloud upon title to your home, even though in Florida a judgment lien can not attach to your homestead, to the extent that a cloud upon title exists the issue can be resolved by obtaining an Order from the Bankruptcy judge. If lawsuits or judgments are a threat or reality, the protection afforded under the bankruptcy laws may be an appropriate solution for you.
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9) PROTECTION OF PROPERTY FROM REPOSSESSION
Repossession is the power of the creditor to take back goods because of the buyer's failure to meet the loan payments.
There are two types of loans: secured and unsecured. A secured loan is one that requires you to pledge something as collateral. For example, if you purchase a car, the creditor will usually require you to put up the car as collateral. On the other hand, an unsecured loan, does not require collateral. Using a credit card is usually an unsecured loan.
If you default on an unsecured loan, the creditor's only recourse, after the letters and the collection agency efforts fail, is to sue. But if you default on a secured loan, the creditor can repossess the collateral and sell it. If the money from the sale isn't enough to pay off the loan, the creditor can sue you for the balance of the loan.
If you fall behind in your loan, you should contact your creditors as quickly as possible and attempt to work out a voluntary repayment plan. You can do this yourself or with the assistance of the non-profit Consumer Credit Counseling Service. Their toll-free number is: 1-800-388-2227.
Bankruptcy may be able to cancel the debt, or it may give the opportunity to stop the repossession. However, bankruptcy should be used in only the most serious circumstances since it can affect your credit for up to ten years. If your property has already been repossessed,
some states give you the opportunity to have your property returned by paying all outstanding loan charges, fees, and costs.
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