FREQUENTLY ASKED QUESTIONS

ABOUT DEBTOR RELIEF PROCEEDINGS

Over the years I have responded to dozens of questions on LawGuru concerning bankruptcy matters, you can view these answers here.

Here’s the first question, posed by me, which makes it a rhetorical question: What is the real reason people file bankruptcy?

The Real Reason People File for Bankruptcy is OBNOXIOUS DEBT COLLECTORS. Of course, people suffer extended unemployment or high medical expenses, colossal credit card debt, all that. But people endure those misfortunes for a long time. What finally pushes them into a lawyer’s office are the unremitting, pushy, rude phone calls of your long distant debt collectors. So God Bless Them.

Below are a number of questions frequently pondered by clients when considering bankruptcy.

1. What's the advantage of a Chapter 7 or Chapter 13 bankruptcy case?

2. Will I lose my job if I file a bankruptcy case?

3. Will I lose my house?

4. What happens to the co-signers or guarantors of my debts?

5. Will a bankruptcy case ruin my credit?

6. How much will it cost?

7. Can I still be evicted?

8. What if my wages are already being garnished?

9. Can a bankruptcy case stop a foreclosure on my home?

10. How many times can I file bankruptcy?

11. Are there any kinds of debt that are not dischargeable?

12. What could go wrong?

1. What's the advantage of a Chapter 7 or Chapter 13 bankruptcy case?

The best thing about a Chapter 7 case is that all your dischargeable debts are wiped out. You never have to worry about those bills again. One of the drawbacks of a Chapter 7 case is that many debts cannot be included in the discharge, including most tax liabilities, family support debts, most student loans, certain civil judgments, and fines and government penalties.

By contrast, one of the benefits of a Chapter 13 case is that almost all debts, even taxes, student loans, and family support matters, can be included in a plan, and in many cases, debts which would not be discharged under Chapter 7 would be entitled to the "superdischarge" of Chapter 13.

But don't think this applies to child support or alimony. These, and a few other debts, are given a preferred status, and if the entire amount due is not paid during the course of the Plan, then you will still be liable for the unpaid balance even after your "discharge" at the conclusion of the Plan.

2. Will I lose my job if I file a bankruptcy case?

No, your employment will not be affected by a bankruptcy case. If your employer should fire you or in any way harm or discipline you because you filed a bankruptcy case, then the bankrutpcy court will severely chastise this employer, compel the employer to return you to your work, and pay lost wages and pay your other damages and attorney fees. As a matter of fact, most employers prefer that you file a bankruptcy so they don't have to mess with the garnishments.

3. Will I lose my house?

Not if you want to keep it. One of the matters you should discuss with your attorney is whether or not to keep the house. If your equity ["equity" = (distress sale value) - (mortgage and other liened debts + selling expenses)] is in the range of $20,000 or less, then you can probably file a Chapter 7 case and keep the house, even in Indiana. If you equity exceeds this amount, then you can file a Chapter 13 and still keep the house, provided you put the arrearges in the Plan and continue to make your regular monthly payments.

4. What happens to the co-signers or guarantors of my debts?

If your parents or maybe your girlfriend co-signed with you on a loan or a credit card, then they will still be liable for the debt. However, if the debt is placed into a Chapter 13 Plan, and fully paid in that plan, then the co-signers will not have to pay.

5. Will a bankruptcy case ruin my credit?

No. A bankruptcy discharge is like a court judgment, and will remain on your credit history for ten years. If you have a good credit rating now, be sure to tell you attorney, so you can try to work out a solution without filing for bankruptcy. However, most clients who are even thinking about a bankruptcy are already in the "rated" category so far as credit agencies go. In that case, a bankruptcy will probably improve your access to credit. But until you have established yourself as a debtor who always pays debts on time, over a period of time, you will not qualify for any of the better interest rates. To answer the question, a bankruptcy will not ruin your credit. But it will make credit more expensive for a few years.

6. How much will it cost?

Wouldn't you like to know! It's not possible to state what the attorney fees will be in your particular case without conducting a consultation (it's FREE!). But I can give you a general idea. The court filing fee for a Chapter 7 case is currently $299.00. For a Chapter 13 case, the filing fee is $285.00. A typical attorney fee for a Chapter 7 cases is $750.00. Plus a $28 credit report free. For a Chapter 13 case, the typical fee is about $1,650. I charge more or less on cases, depending on the complexity, the number of petitioners, and other factors. For Chapter 7 cases, I expect all the filing and attorney fees to be paid before I file the petition. In a Chapter 13 case, I can work out a payment arrangement.

7. Can I still be evicted?

Yes. When your bankruptcy case is filed, all proceedings against you must be stopped, including evictions. However, if you are not prepared to pay your current rent and promptly make up the back rent, the landlord will be given permission to continue with eviction.

8. What if my wages are already being garnished?

Garnishments must stop when you file for bankruptcy. And in many cases, some of the money taken from your old paychecks must be returned.

9. Can a bankruptcy case stop a foreclosure on my home?

Yes, the foreclosure must stop. But unless you are making your current payments and are able to make up the back payments, then the creditor will probably get permission to continue with the foreclosure. However, in a Chapter 13 case, you can put all the back payments into your Plan, and repay them over a period of three years.

10. How many times can I file bankruptcy?

It's possible to file a Chapter 7 case eight years after your discharge in the last Chapter 7 case. It takes about four months for the discharge to come through after you file your case, so you could file a Chapter 7 case every eight and a half years. You can file a Chapter 13 case four years after a prior Chapter 7 discharge or two years after a Chapter 13 discharge. (Bear in mind, Chapter 13 cases usually require a payment plan that last three to five years, so there will be at least five years between filing dates.)

11. Are there any kinds of debt that are not dischargeable?

Yes. There are several categories of debt that are not forgiven in a bankruptcy case. A few examples include child support and alimony debts, student loans, taxes, court fines and other government penalties, drunk driving personal injury damages, and fraudulently obtained credit. However, all of these "nondischargeable" debts can be treated in a Chapter 13 payment plan, and in some cases the debtor will be excused from paying all of the debt.

12. What could go wrong?

I don't have enough imagination to tell you everything that could go wrong. But most bad things in bankruptcy cases come from two categories. The first is failing to keep your commitments to the bankruptcy court. If you promise the court in your Chapter 13 Plan that you will make monthly payments of $250, for instance, it's not like promising something to your mother. The first time you miss a payment, the court will schedule a hearing to dismiss the case. And you'll need to have brought yourself current and then do some serious bootlicking to avoid a dismissal at the hearing. The second time? Don't think about it.

The second major category for bad things happening is failing to provide the court with accurate statements of your affairs. If you neglect to mention the name and address of a creditor, then that debt won't be discharged. If you neglect to mention an important asset or source of income, then the trustee might ask that your case be dismissed.

© 2011 David DuMond

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