What is Bankruptcy?

October 12, 2011

Bankruptcy is a legal proceeding in which a person who can not pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. 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.

Source: National Consumer Law Center brochures  These may be downloaded free of cost.

 

“NCLC’s brochures offer basic information for consumers on the most critical consumer issues,    including  predatory lending, debt collection, credit reports, lemon laws, bankruptcy, foreclosure, payday loans, predatory mortgage loans, credit card debt, living trust scams, telemarketing fraud, refinancing, loss of utility services and other issues.”

What Must I Do Before Filing Bankruptcy?

October 12, 2011

You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. I have an agency that I suggest, but you are welcome to find one on your own as long as it is accepted for this state by the bankruptcy court. If you decide to file bankruptcy, you must have a certificate from the agency showing that you received the counseling before your bankruptcy case was filed.

Most approved agencies charge between $30–$50 for the pre-filing counseling. However, the law requires approved agencies to provide bankruptcy counseling and the necessary certificates without considering an individual’s ability to pay. If you can not afford the fee, you should ask the agency to provide the counseling free of charge or at a reduced fee.

It is important to keep in mind these important points:

  • Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you.
  • If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case).
  • There are approved agencies for bankruptcy counseling that do not offer debt management plans. It is usually a good idea for you to meet with an attorney before you receive the required credit counseling. Unlike a credit counselor, who can not give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. The attorney can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust.

I recommend getting online credit counseling from CredAbility, but you may use a provider of your own selection. When you come into the office I can supply you with their contact information.

I live in Louisiana, what property can I keep?

October 12, 2011

In a chapter 7 case, you can keep all property which the law says is ‘‘exempt’’ from the claims of creditors. It is important to check the exemptions that are available in the state where you live. (If you moved to your current state from a different state within two years before your bankruptcy filing, you may be required to use the exemptions from the state where you lived just before the two-year period.) In some states, you are given a choice when you file bankruptcy between using either the state exemptions or using the federal bankruptcy exemptions.

Louisiana has ‘‘opted’’ out of the federal bankruptcy exemptions, so you will be required to choose exemptions mostly under Louisiana state law. However, even in an ‘‘opt-out’’ state, you may use a special federal bankruptcy exemption that protects retirement funds in pension plans and individual retirement accounts (IRAs).

Some of Louisiana’s exemptions — as of 2011 — include:

  • $35,000 in equity in your home;
  • $7500 in equity in your car;
  • Tools that you use to earn a living;
  • The musical instruments played or practiced on by you or a member of your family;
  •  Any wedding or engagement rings worn by either spouse, up to a value of $5,000; and
  •  Most retirement benefits.

In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth when your bankruptcy case is filed. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.You also only need to look at your equity in property. That means you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $150,000 house with a $115,000 mortgage, you have only $35,000 in equity. You can fully protect the $150,000 home with the $35,000 exemption.

While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.

What Will Happen to My Home and Car If I File Bankruptcy?

October 12, 2011

In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13. However, some of your creditors may have a ‘‘security interest’’ in your home, automobile, or other personal property.

This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

In a chapter 13 case, you may be able to keep certain secured property by paying the creditor the value of the property rather than the full amount owed on the debt. Or you can use chapter 13 to catch up on back payments and get current on the loan. There are also several ways that you can keep collateral or mortgaged property after you file a chapter 7 bankruptcy.

You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount
that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor,
you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to
purchase the goods), you can usually keep your property without making any more payments on that debt.

 

(see: Foreclosure! What about my home?)

(see:  Will I get to keep my Car?)

Can I Own Anything After Bankruptcy?

October 12, 2011

Yes! Many people believe they can not own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.

Will Bankruptcy Wipe Out All My Debts?

October 12, 2011

Yes, with some exceptions. Bankruptcy will not normally wipe out:

  • Money owed for child support or alimony;
  • Most fines and penalties owed to government agencies;
  • Most taxes and debts incurred to pay taxes which can not be discharged;
  •  Student loans, unless you can prove to the court that repaying them will be an ‘‘undue hardship’’; (see Student Loans: is there anything I can do)
  • Debts not listed on your bankruptcy petition;
  • Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
  • Debts resulting from ‘‘willful and malicious’’ harm;
  • Debts incurred by driving while intoxicated;
  • Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

Will I Have to Go to Court?

October 12, 2011

In most bankruptcy cases, you only have to go to a proceeding called the ‘‘meeting of creditors’’ to meet with
the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and
simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.

Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear at a hearing. In a chapter 13 case, you may also have to appear at a hearing when the judge decides whether your plan should be approved. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.

There is another section on this webpage that explains the Meeting of Creditors in more detail.

What Else Must I Do to Complete My Case?

October 12, 2011

After your case is filed, you must complete an approved course in personal finances. This course will take approximately two hours to complete. Many of the course providers give you a choice to take the course in-person at a designated location, over the Internet (usually by watching a video), or over the telephone. I can give you the contact information for an organization that I recommend called Credability, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust for other providers.

 

What Else Should I Know?

October 12, 2011

Utility services—Public utilities, such as the electric company, can not refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.

Discrimination—A government agency can not discriminate against you because you have filed for bankruptcy. However, a private employer however is not subject to this rule according to a recent federal court decision.

Driver’s license—If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.

Cosigners—If someone has cosigned a loan with you and you file for bankruptcy, the cosigner may have to pay your debt. If you file under chapter 13, you may be able to protect cosigners, depending upon the terms of your chapter 13 plan.

What Bankruptcy Can Not Do?

October 12, 2011

Bankruptcy can not 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 creditor is ‘‘secured’’ if it has taken a mortgage or other lien on property as collateral for a 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 on the debt if you decide to give back the property. But you generally can not keep secured property 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, most student loans, court restitution orders, criminal fines, and most taxes.
  • Protect cosigners on your debts. When a relative or friend has cosigned 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.

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Notice

The law office of Steven J. Hunter is a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code

Full Legal Disclaimer

What is bankruptcy?

Bankruptcy is a right provided by law to people who are deeply in debt and in need of a fresh start. Bankruptcy will discharge many of your debts and you will not have to pay them, except that mortgages and other liens may still need to be paid if you want to keep the secured property.


See Beginner's Bankruptcy above