Benefits of Filing Bankruptcy
Filing for bankruptcy is a path many consumers consider when facing significant financial pressure. In fact, in the past 12 years, 12.8 million Americans turned to it as the solution to their financial strain. Here are some answers to frequently asked questions about Bankruptcy:
Is it wrong to file Bankruptcy?
Absolutely not. Filing for Bankruptcy is taking a positive step to regain control of your financial situation, reorganize your personal finances and obtain a fresh financial start through a discharge. In Chapter 13 Bankruptcy you repay all or part of your debts. Whatever financial problems you may have, Bankruptcy is a time-tested responsible approach to resolve your financial problems. Sometimes life brings on unexpected events which could never have been planned for. The bankruptcy laws were designed to help people address their financial difficulties in an honest, forthright, and straightforward manner. Bankruptcy relief in the United States has been around since the 1800s and millions have utilized it to responsibly address the financial difficulty, including the 16th President of the United States Abraham Lincoln, who filed for bankruptcy twice as well as other notable individuals who have filed for Bankruptcy. You have a constitutional right to resolve your financial problems using the Bankruptcy Code.
What is Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy is a Court supervised debt reorganization process. Chapter 13 bankruptcy allows a debtor to enter into payment arrangements called a Chapter 13 plan, under the supervision of the Bankruptcy Court. A “Chapter 13” bankruptcy offers you the protection available under Chapter 13 of the United States Bankruptcy Code allowing you to repay your debts over time based on your disposable income. You generally do not relinquish any of your property and in a Chapter 13 bankruptcy, and utilize your disposable income to pay all or part of your creditors over a time period ranging from a minimum of three to a maximum of five years, depending on your specific situation and ability.
How does Chapter 13 Bankruptcy work?
When you file for Chapter 13 protection, you ask the Court to allow you to pay your debts over time. You submit a proposed payment plan based on your particular situation which primarily depends on your disposable income. If your plan satisfies the requirements imposed by the Bankruptcy Code, the Court will approve your plan. For the term of your repayment plan a minimum of 3 and a maximum of 5 years, you send money (generally withdrawn automatically from your paycheck) to the Chapter 13 Bankruptcy Trustee. The Chapter 13 Trustee, in accordance with your plan, pays themselves (a percentage of your payment as compensation for administering your plan) and then your creditors. Upon completing your repayment plan, the Court will discharge the balance of your remaining (dischargeable) debts.
What will Chapter 13 Bankruptcy do for me?
The greatest benefit of a Chapter 13 Bankruptcy is often the ability to keep all of your property and repay all or part of the debts you are behind on. You get some breathing room and potentially a fresh financial start if you complete your Chapter 13 Bankruptcy Plan and receive a discharge. Chapter 13 offers individuals a number of advantages over liquidation under Chapter 7. Most significantly, Chapter 13 provides individuals an opportunity to save their homes from foreclosure. And, filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. The automatic stay can relieve the financial burdens of stress and restore peace of mind by stopping creditor collections and harassment. Once the Chapter 13 Bankruptcy Petition is filed, the collections calls and bills stop. Any lawsuit, collection action, repossession, or garnishment pending against you is stopped. With the exception of child support collections, Chapter 13 allows you to stop your creditors and reorganize your personal finances.
What is Chapter 7 bankruptcy?
A Chapter 7 bankruptcy is a process, also known as a liquidation, which allows the debtor to keep certain assets & sell other assets, under the supervision of the bankruptcy court. In exchange for the liquidation, all debts are canceled. A “Chapter 7” bankruptcy provides you the protection available under Chapter 7 of the United States Bankruptcy Code. Under Chapter 7, a Court can relieve you of the responsibility to pay your unsecured dischargeable debts and let you keep your exempt property. Chapter 7 bankruptcy is most often used to eliminate, or discharge, primarily unsecured debts such as credit cards, medical bills, certain taxes, as well as some judgments & lawsuits. Chapter 7 bankruptcy does not eliminate secured debts, such as vehicles (unless the secured property is surrendered). Chapter 7 bankruptcy will not save a house from foreclosure or a car from repossession if you are delinquent in payments. Most Virginia Chapter 7 bankruptcy debtors have little non-exempt personal property because of Virginia’s favorable exemptions.
What will Chapter 7 Bankruptcy do for me?
The greatest benefit of Chapter 7 Bankruptcy is often a fresh financial start which can relieve the financial burdens of stress and restore peace of mind. Once the Chapter 7 Bankruptcy Petition is filed, the collections calls and bills stop. Any lawsuit, collection action, repossession, or garnishment pending against you is stopped in its tracks. Once the discharge is entered, you should have a real fresh financial start in a very real sense. No lawsuits, zero balances on all your credit cards, no more medical bills, no payday or personal loans, and no calls from bill collectors.
Can I eliminate income taxes through Chapter 7 bankruptcy?
Yes, depending on the age of the tax debt. Generally, you can eliminate income taxes more than 3 years old. Under the law, there are 3 or 4 qualifications that have to be met, but, once these are met these types of income taxes can usually be discharged. Tax debts are generally dischargeable only if you file bankruptcy more than three years after you file a truthful and timely tax return. If your return was filed late, the taxes are generally dischargeable only if you file bankruptcy more than two years after filing a truthful tax return. There are exceptions to these rules and it is important for you to contact us to determine if your taxes are dischargeable.
How Does Bankruptcy Affect My Credit Score?
Depending on your situation, filing for Bankruptcy can dramatically increase your credit score. Even if your credit score falls after filing, it will begin to increase dramatically as you rebuild your credit. The professionals at Kane & Papa will review all three of your credit reports with you and provide you with a detailed report from the credit reporting agencies on how filing bankruptcy will affect you.
Will my bankruptcy affect my spouse’s or a co-signer’s credit?
No. When you file for bankruptcy, as long as any joint debts are being paid, neither your spouse’s nor the co-signer’s credit will be affected.
Will I lose my job if I File Bankruptcy?
No. It is a violation of the U.S. Bankruptcy Code and of Federal Labor laws for an employer to terminate or discriminate against an employee because they filed for bankruptcy.
Can I include my back child support in my Chapter 13 bankruptcy?
Child support arrears may be included in a Chapter 13 bankruptcy but there are some changes in relation to the new bankruptcy law. A Chapter 13 Bankruptcy does not prevent actions of enforcement against non-exempt property nor does not affect the future child or spousal support obligations. Contact an attorney to determine your particular child support situation as it relates to Chapter 13 bankruptcy.
Can I repay debts owed to relatives before filing Chapter 13 Bankruptcy so that I do not have to list them on my bankruptcy petition?
No. Payments made to relatives within 12 months (one year) before filing bankruptcy are considered “preferences”. The trustee may have the right to pursue the relative to recover the preference and divide the money equally among all creditors.
Can I choose which debts and property to include in my Chapter 13 bankruptcy?
While you may treat certain creditors differently in your Chapter 13 Plan, the law requires you to list all your property and all your debts.
Can Bankruptcy discharge or eliminate all my debts?
The following are considered unsecured non-priority non-dischargeable debts:
• Student loans (absent a rare exception)
• Fines, penalties & restitution imposed by a court or other governmental entity which include certain federal, state, and local taxes, restitution, fines, penalties (absent a hardship showing)
• Judgments for personal injuries or death resulting from drunk driving convictions (absent a hardship showing)
• Debts not dischargeable in a previous bankruptcy because of fraud
Although you will include these debts in your plan, the balance remaining upon completion of your plan cannot be discharged.
What’s the difference between a secured debt and an unsecured debt?
A secured debt is one where the creditor takes personal or real property as collateral. A creditor whose debt is secured has a right to take the property to satisfy a debt in default. A secured debt (like a mortgage on a house or a car loan) gives the creditor the right to take back the security (car, house, furniture, etc.) if you fail to make your payments.
A debt is unsecured if you have simply promised to pay a creditor a sum of money at a particular time, and you have not put up any real or personal property as collateral. An unsecured debt (like a credit card, medical bill, utility bill, rent, etc.) does not give the creditor the right to repossess any property you have. All the creditors can do is to sue you for the money it is owed.
Do I Need an Attorney to File Bankruptcy?
Yes. It is extremely rare for a Chapter 13 case to succeed without the debtor being represented by an attorney. Since the one thing that is in common with almost all bankruptcy debtors is a lack of available money, many people consider filing bankruptcy without a lawyer. This option known as “Pro Se” is available to all consumer debtors. The new bankruptcy law is more rigid in its requirements and the process is not as simple as just filling in the blanks. In the past, if a debtor failed to follow through on a documentation requirement or filed incorrect paperwork, there was usually an opportunity to correct the problem. This is not the case anymore. Under the current bankruptcy law, there are various timelines or deadlines for certain actions, and the failure to perform these tasks timely will result in a dismissal of your case. You need an experienced attorney to make sure you meet these timelines. Keep in mind that everyone involved in the Chapter 13 Bankruptcy process is a lawyer or has an attorney representing them. The Judge is a lawyer and the Court has the US Trustee who is a lawyer, the Chapter 13 Trustee is a lawyer or has a lawyer, and most all creditors have lawyers representing their interests. If you are the only one without legal assistance, you are likely at a grave disadvantage. You can be compelled by the other side into making bad decisions, lose property, or even become subject to further legal proceedings if you do not know your legal rights. Remember, it is always more expensive to hire a lawyer to fix problems than it is to assist you from start to finish.