What Is Bankruptcy?
Bankruptcy is a federal legal process that offers a way out of debt and allows you to get a fresh start. There are two types of personal bankruptcies.
Chapter 7 discharges debts without requiring payments to the court and usually allows you to keep items like houses, cars and household goods. A Chapter 13 bankruptcy is for people who have greater income, but are delinquent on significant assets like houses or cars. Chapter 13 requires payments to the court over a period of time to repay the delinquency, or a percentage of the debt.
You can determine the Chapter appropriate for you by determining your gross income or by completing a federal means test. If you earn more than the mean income in the state, you may still be eligible for a Chapter 7 if you pass the means test. If you fail them both you may be better suited for a Chapter 13 partial repayment plan.
What is an Automatic Stay?
Once you file for relief under any Chapter of the U.S. Bankruptcy Code, creditors cannot continue to contact you. This includes letters, phone calls and any other type of collection activity. Sometimes, a creditor might contact you in error. Simply provide them with your case number and/or our contact information and the calls will stop.
The automatic stay also ceases any lawsuits from creditors, garnishments, repossessions, mortgage foreclosures, evictions or enforcements of any outstanding liens or judgments.
Exceptions to an automatic stay apply to debts that cannot be discharged through bankruptcy, but we will already have discussed these with you prior to filing. Child support and alimony obligations are not dischargeable. For debts that are tied to some form of collateral, a creditor might ask the court for relief from the automatic stay, but we will do everything in our power to defend our clients in these instances.
Have changes in the law made Chapter 7 too difficult?
No. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, to discourage Chapter 7 filings and encourage more people to reorganize their debts under Chapter 13.
These changes have raised the bar a little for qualifying for a Chapter 7 and the related filing requirements, referred to as means testing, plus, mandatory debt counseling. The bottom line though discharging your debts through Chapter 7 is alive and well and it has not changed as much as many people have been led to believe.
How can a bankruptcy help stop home foreclosure?
The automatic stay stops home foreclosures, as well as other debt collection activities. However, the bankruptcy laws do have built in protections for secured creditors, such as mortgage holders.
So, a Chapter 7 or 13 filing will interrupt, but doesnt eliminate a mortgagees legal rights to ask the bankruptcy court for relief from the automatic stay to resume foreclosure proceedings.
The bankruptcy judge has the final say. There are few key criteria. First, how much you equity you already have in your home. The greater the amount, the better your chances of successfully fighting a foreclosure. A second criteria focuses your ability to make future monthly payments. If you can, the greater your chances to negotiate a favorable out-of-court resolution with the mortgage holder. For example, under a Chapter 13, payments for defaults prior to bankruptcy can usually be spread out over a period of time. Working out mortgage problems and preventing future foreclosure proceedings represent a major advantage to having an experienced bankruptcy lawyer on your side.
How will a bankruptcy influence my access to future credit?
Bankruptcy actually improves your access to credit, almost immediately. This is due to the fact that creditors realize you have reduced or eliminated most of your outstanding financial obligations, plus, you cannot file for bankruptcy again for at least another eight years. Look for credit card offers shortly after a bankruptcy case.
If you follow some important steps for restoring your credit, for future purchases such as a car or home, most individuals can expect to enjoy acceptable interest rates and access to credit within two years after a discharge under Chapter 7 or Chapter 13.
To help ensure a smooth road back to credit-worthiness, we can make sure that credit reporting agencies have up-to-date information about your bankruptcy discharge and each discharged debt.
Should married couples file together?
It depends, but if only one files, the other does not automatically assume the debts. Typically, a spouse is only liable for your debts if he or she signed a promissory note.
How do divorce settlements influence my responsibilities?
The details of a divorce settlement dont apply to creditors, only the divorcing spouses. So, if one of you had been originally liable for a particular debt, that obligation still applies.
Can student loans be discharged through bankruptcy?
Educational loans guaranteed by the United States government are generally not dischargeable under a Chapter 7 or Chapter 13 bankruptcy.
However, they may be if the court can be convinced that repayment of the loan(s) represents an undue hardship on the debtor and his or her dependents, for purposes of making any current or any future payments. Note that special fees are involved in this type of filing and the application must be made before the discharge of other debts is granted.
Some of the tests courts apply to determine eligibility include:
- Income Is it insufficient to maintain a minimum standard of living for the debtor and his or her dependents?
- Time Period Will the debtor be unlikely to make payments on the loan over a significant period of time?
- Good Faith Does the debtor have a history of making every effort to repay the loan prior to the bankruptcy filing?
How Does a Bankruptcy Filing Effect Alimony and Child Support Payments?
A Chapter 7 filing should have no impact. Although filing bankruptcy stops efforts to collect debts, actions to collect child support or spousal maintenance are exceptions unless they involve attempts to collect from the property of the estate. In a Chapter 7, this includes all possessions, money, and interests of the estate that the debtor owns at the time of filing. Note that, money earned after the bankruptcy is filed is not considered property of the estate.
A debtor under Chapter 13 must pay all domestic support obligations that fall due after the petition is filed. So, neither a Chapter 7 nor a Chapter 13 discharges obligations involving future child or spousal support.