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Bankruptcy is a powerful tool for dealing with your creditors. Bankruptcy is provided for in the U.S. Constitution and federal law. The bankruptcy code is included in Title 11 of the United States Code, and Title 11 is broken up into several chapters. Those chapters describe various aspects of bankruptcy.
The key thing to remember about bankruptcy is that it is a system designed to give you a way to deal with all of your creditors at once and to pay them what you can actually afford to pay them. It is not intended to be a way to avoid your creditors and your obligations. Instead, it is intended to be a way to give "honest, but unfortunate" people a responsible way to resolve debt they cannot otherwise afford to pay.
That being said, most people find that the bankruptcy system does free them of most, if not all of their debt.
Once you have paid what the bankruptcy code says you are required to pay your creditors, if anything at all. you will receive a "discharge." A discharge is a permanent injunction issued by the federal bankruptcy court that prevents any further action to collect a debt as a personal liability of the debtor.
A discharge is not a forgiveness of debt by your creditors. They are simply ordered to leave you alone and denied legal options for collecting or enforcing the debts against you. The discharge does not protect your property from liens that existed prior to the bankruptcy filing. What this means is that the discharge will not prevent, for example, repossession of a car or foreclosure of a home if you do not make the payments. However, if you have received a discharge, a creditor who repossesses a car or forecloses on a home can no longer collect the difference between what they were able to recover selling the repossessed collateral and what you owed them.
Can filing bankruptcy help me?
When a person becomes unable to pay their debts as they come due, whether because of health problems, divorce, job loss, lack of financial planning, or other causes, creditors become very impatient. Often at the first sign of financial trouble, creditors increase interest rates, late fees and other penalties, usually adding to the problem. If you are unable to pay, your creditors may decide to take you to court and get a judgment against you. This gives them the ability to take (or "garnish") your paycheck and your bank account, or take your home or other property. This often results in one creditor getting paid at the expense of all the others, leaving nothing for you or your family. For many people, this cycle could go on for years without some way out.
Bankruptcy exists as way to resolve this stressful, chaotic, no-win situation. It ensures that you pay whatever portion of your debts you can, and much of cannot be paid is discharged. In most cases, the creditors receive nothing and the entire debt is discharged. This is a huge benefit. A bankruptcy discharge means that your creditors can no longer do anything to make you pay what you owed them. On the other hand, it does not do anything to keep you from voluntarily paying a debt sometime in the future when your situation improves.
We understand that most people really want to be able to pay their bills and meet their obligations. The fact is that sometimes things happen that are beyond our control.
Bankruptcy may be the answer for you if any of the following are true:
- You're unable to pay your bills on time
- You're being harassed by bill collectors
- You have a judgment against you
- Your paycheck is being garnished
- Your house is in (or about to be in) foreclosure
- You've been unsuccessful with debt negotiation or workout plans
- You're behind on child support or alimony payments
- You're behind on taxes
- You're behind on student loans
- You're unable to pay more than the minimum payments on your credit cards and are carrying large balances that never go down.
What do I have to do to receive a discharge of my debts?
In exchange for this relief available through a bankruptcy discharge, you will be asked to provide complete disclosure of all your finances - your property, your debts, your income and anything you have sold or given away, so that everyone involved can be sure they are being treated in a way that complies with the bankruptcy code, and so that the court can ensure that you do pay your creditors what they are entitled to receive.
You also have to agree to fully cooperate with the process and follow the rules and instructions of the bankruptcy court and its representatives. It is important to remember that the discharge is given in exchange for your cooperation and for whatever property you may be required to turn over to the bankruptcy trustee. Whatever you may be required to give up in exchange for a discharge is usually worth far less than the total amount of your debt.
Filing for bankruptcy relief is a serious thing to do. Congress recently made changes to the bankruptcy laws that were designed to make getting a discharge more difficult. Getting a discharge will require some effort, and maybe some sacrifice on your part.
If bankruptcy is right for you, the benefits will be worth the effort. Our office will guide you all the way through this process.
You'll want to keep reading to find out more about the bankruptcy system, but the process begins with a free, no obligation initial consultation. Please click on the "Appointments" button above to schedule a consultation.
How much will I have to pay my creditors?
The amount that you have to pay your creditors is determined by a number of factors, but most people are not required to pay very much of what they actually owe. The first thing the court looks at is your "liquidation analysis." As mentioned above, outside bankruptcy creditors can get a judgment against you and begin taking your paycheck and other property to satisfy the debt.
By law, however, some types of property are protected from creditors in this situation. This "exempt" property is specifically identified in state law as property creditors cannot take (unless they hold a lien against it that you gave them, like a mortgage or a car loan, or if that creditor gave you the money to buy that item). Property that is not protected from creditors is called "non-exempt" property. Creditors are legally entitled to receive the value of this non-exempt property.
The liquidation analysis involves figuring out what your non-exempt property is worth, after accounting for any liens against that property that would have to be satisfied. This amount is the minimum amount that will have to paid to your creditors.
The second thing the court looks at is your income and expenses. The court will look at your monthly income, based on an average of your income over the six months prior to your bankruptcy filing date, and will look at your average expenses for necessary items, including taxes, insurance, housing, utilities, food, clothing, medical expenses, transportation and support obligations. (A more detailed description of this process is outlined in the "Means Test" section below.) If your budget shows that you have to ability to make a monthly payment to your creditors, you may be required to do so for a three or five year period before you can get your discharge.
In each case, a bankruptcy trustee will be assigned to represent the interests of your creditors as a group. The trustee's job is to oversee the process of paying your creditors, either through the sale of non-exempt property or through the collection and distribution of a monthly payment.
Generally speaking, exempt property consists of essential, non-luxury items that are necessary for the support and maintenance of the debtor and his or her family. Exempt property consists of less-necessary or luzury items.
There are a number of different kinds of bankruptcy, each named after a chapter of the bankruptcy code. You may have heard of some of them.
Corporations and wealthier individuals (including Enron, MCI, most U.S. airlines, etc.) file under Chapter 11.
Government entities file under Chapter 9.
Family farmers file under Chapter 12.
International bankruptcies are filed under Chapter 15.
Most individuals with consumer debts will file under either Chapter 7 or Chapter 13.
Chapter 7 is what most people are thinking of when they hear the word "bankruptcy." It is also often called a "straight" or a "fresh start" bankruptcy.
In Chapter 7, the bankruptcy trustee will review your property and determine whether there is enough value or equity in your non-exempt property to be able cost-effectively sell or "liquidate" those items. Trustees often find that non-exempt items are not worth enough to be able to cost-effectively liquidate. When this happens, the debtor gets a discharge without turning over any property. (We call those "no asset" cases).
If the trustee decides to sell non-exempt property, that property must be turned over to the trustee in exchange for the discharge. An alternative to turning over property is called redemption, which allows you to buy the item back from the trustee. This is usually only available if you can pay for the value of the item in full at one time (no payments) with money earned or received after case is filed.
Chapter 7 will not help you save your home, your car, or other collateral securing loans if you are behind on those debts when you file. And since it does not affect most security interests, it does not eliminate the payments on those items if you plan to keep them. This means that if you want to keep an item that is pledged as collateral on a loan, you will have to continue to make those payments.
With a Chapter 7 filing through our office, your case will usually be done, and you will have your fresh start, within about 90 days of your filing date.
Chapter 13 is a debt reorganization or debt consolidation program. It is also sometimes called a "wage earner's plan." Chapter 13 requires you to be able to make a monthly payment to your creditors through the trustee. Instead of giving up your non-exempt property, you can pay the value of that property over a 3 to 5 year period through monthly payments.
You may be required to file Chapter 13 if you have too much disposable income.
Some debts that cannot be discharged under Chapter 7 can be restructured and paid under Chapter 13. This allows you to get caught up debts like your home and car loans.
Under Chapter 13, you will be required to pay your disposable income to the trustee for between 36 and 60 months, or until your creditors receive at least as much as they would have received through a Chapter 7 liquidation. Generally, all of your debt payments, including your car and other secured loans, and the amount you are behind on your home, will be included in this payment.
Unlike some debt consolidation or negotiation programs, Chapter 13 does not require the cooperation of your unsecured creditors. Unsecured Creditors will receive only what you can afford to pay based on your liquidation analysis, and your income and allowable expenses. Chapter 13 means living on a court-approved budget for up to 5 years. This requires a serious commitment.
Developing a proper Chapter 13 plan is a complex process, and requires an attorney with a detailed knowledge of bankruptcy law and a great deal of practical experience. Because of our years of experience in bankruptcy practice, we are familiar with the requirements of the code and of our local bankruptcy court. We know the types of provisions that will be approved or "confirmed" by the court.
After we receive all your financial information, we will prepare a Chapter 13 plan that works with your budget and complies with the requirements of the bankruptcy code.
What debts cannot be discharged?
While most types of debts can be discharged, some debts are excluded from the discharge. As a general rule of thumb, you can't discharge a debt when you did some sort of bad act in acquiring the debt. This includes debts incurred through fraud, theft or embezzlement, or debts related to criminal acts, including willful injury to someone else or driving while impaired. Criminal fines and penalties are also not discharged.
Other debts are not included in the discharge as a matter of public policy. These include domestic support obligations, student loans, and debts imposed through a divorce decree or property settlement.
Some taxes may dischargeable, if they are older, and if the returns were filed on time or within an allowed extension. The return must also be free of a claim of tax evasion.
The means test is a new twist on an old concept in bankruptcy.
There has long been a provision in the bankruptcy code that prevented the courts from granting a chapter 7 discharge if giving the debtor a discharge "abused" the bankruptcy system. The problem with this idea was that no one really knew what kind of situations "abused" the system. Congress tried to make this idea a little clearer with the new bankruptcy laws that went into effect in October 2005.
In principle, the means test is fairly straight forward. Your total income from all sources (including gifts, withdrawals from retirement accounts, unemployment benefits - everything but social security) over the last six months is added up and then divided by 6 to come up with a number called Current Monthly Income. Current Monthly Income is then multiplied by 12 to come up with an annual income number that is compared to the median income for a household of your size in your county of residence.
If you make more than the median income, you may have to file a Chapter 13. If you make less, you will probably be able to file a Chapter 7. In most cases the means test is pretty basic. But because this law is brand new, there are some cases where we may have to have additional financial information to determine your eligibility for chapter 7. We will be able to tell you what chapter you can file under when we have received all of your financial information and can complete the means test calculation.
Will I lose my home or my car?
Most people who file bankruptcy are able to keep their home and car. In many cases, keeping these things is the reason they file. Do keep in mind that even if bankruptcy, if you want to keep your home and car you will still have to pay for them.
Keeping your home depends on a couple of things. If you are behind on payments or have more equity than can be protected under the exemptions statute, you may need to file a Chapter 13 to keep your home. At minimum however, you will need enough income to make your mortgage payment and the rest of the payments required under your Chapter 13 plan.
If you don't have much equity and are current on payments (and can continue to make them) you will usually be able to keep your home, even under Chapter 7.
Will I ever be able to get credit again?
YES. Assuming you ever want credit again, it will be available. The real impact of bankruptcy is in the cost of credit, not the availability. There are many "fresh start" loan programs for mortgages and vehicle loans. Several prominent local car dealerships appear to use bankruptcy filing records to generate mailing lists, and those "pre-approved" credit card offers you get everyday will barely slow down. We have had clients qualify for no money down mortgages just a few months after their discharge.
All that aside, the interest rates available will be higher, and there are many predatory loan programs targeting bankruptcy filers. You should be very careful, and very conservative in obtaining credit after your bankruptcy. While a bankruptcy will appear on your credit report for ten years, if you avoid further financial problems after you file and pay your bills on time, most people find that the bankruptcy remains a factor in lending decisions for only a few years after their discharge.
The first step to obtaining your bankruptcy discharge is to schedule an appointment for an initial consultation. At this first visit we will discuss your situation and determine if bankruptcy is a good option for you. We will also discuss any non-bankruptcy options that may appear appropriate in your situation, and we will discuss the costs and fees involved in filing.
Please plan on bringing the following documents with you to your first appointment (if a husband and wife will be filing together, please bring the following for both of you):
- Driver's license, proof of properly issued social security number, and proof of current residence (utility bill, etc.)
- Copies of your last two paystubs
- Copies of any current lawsuits and/or garnishments
- A good idea of how much you owe, who you owe, and what kind of debts they are (home loans, car loans, credit cards, medical bills, bad checks, etc.)
- A good idea of how much gross income you make each month, how much you take home, and what your monthly expenses are.
If you can't come up with these documents in time for your visit, that's OK. They're helpful, but we can still have a productive discussion without them. Filling out the initial consultation packet before the appointment will be very helpful. There's a link to it here, and on our home page.
The initial consultation is free and you will not be obligated to hire us to file your bankruptcy case. You don't need to bring any money with you. However, if you are already sure you will be filing, it will move things forward faster if you can bring at least a portion of the retainer fee with you. The upfront cost in most bankruptcy cases is between $1200 and $1500, including my fee, the court filing fee, costs for credit and public reports, and credit counseling. This amount is similar to that charged by most attorneys along the Wasatch Front for bankruptcy services. I recommend between $50 and $200 for the initial payment. You can pay the rest of the fees prior to your filing. If you need to file quickly, to stop a garnishment or foreclosure, you will need to plan on paying the full fee at the initial consultation, and you should do the best you can to complete the questionnaire and gather the documents on the supporting document checklist included with the questionnaire and bring those with you to the first visit.
At the initial consultation, if you decide you will be filing bankruptcy through our office, we will provide you with a binder containing our full questionnaire and a supporting document checklist.
If you would like to get started now, you can download the questionnaire form here or through the link in the blue banner on the top left of this page.
When you have completed the questionnaire and gathered all the needed supporting documents (paystubs, tax returns, vehicle registrations, etc.) we will get back together for a binder return appointment. At that appointment we will review those documents and make sure the questionnaire is complete. We will then use the questionnaire to complete the documents that will be filed with the court.
While we are preparing your filing documents, you will need to obtain your pre-bankruptcy credit counseling. This is done over the internet and by telephone. We work with Hummingbird Credit Counseling and Education. Their website is www.hbcce.org. The fee for this counseling session is included in the fees you will pay prior to your case filing. This counseling session requires a high-speed internet connection. If you don't have one, we will schedule a time for you to complete the session using a computer in our office.
When the filing documents are completed (usually within seven days of the binder return, sooner in emergency cases) and you have paid the fees outlined at the initial consultation, we will meet again to review and sign those documents. After the signing, your bankruptcy case will be filed.
About 30 days after your case is filed, you will have a Meeting of Creditors, which is really just a meeting with your bankruptcy trustee. He will review the documents that have been filed and ask questions about your financial situation. You may be asked by the trustee to take certain steps or to provide additional financial information. In Chapter 13 cases you will also have to make your first plan payment at this meeting.
In Chapter 13 cases, you will have a hearing to confirm your Chapter 13 plan. This hearing is usually held about 45 days after the meeting of creditors.
Within 45 days after your Meeting of Creditors you must complete your Debtor Education / Financial Managment Course. This course is available through Hummingbird Credit Counseling and Education. Their website is www.hbcce.org. The fee for this counseling session is included in the fees you will pay prior to your case filing. This counseling session requires a high-speed internet connection, and involves watching a two-hour video. If you don't have one, we will schedule a time for you to complete the session using a computer in our office.
In most Chapter 7 cases you will receive your discharge about 60 days after the Meeting of Creditors. In Chapter 13 cases you will continue to make your monthly plan payment. You will receive your discharge at the completion of your plan.
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