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Everything You Wanted To Know About Bankruptcy

What Is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. 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. A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems. Bankruptcy is a difficult and personal decision, but it is a choice that may help if you are facing serious financial problems.

Although bankruptcy can help with some financial problems, its effects are not permanent. If you choose bankruptcy, you should take advantage of the fresh start it offers and then make careful decisions about future borrowing and credit, so you won’t ever need to file for bankruptcy again!

What Can Bankruptcy Do for Me?  Bankruptcy may make it possible for you to:

1. Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.

2. Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)

3. Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.

4. Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.

5. Restore or prevent termination of utility service.

6. Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

What Can’t Bankruptcy Do for Me?

Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:

1. Eliminate certain rights of “secured” creditors. A “secured” creditor has taken a mortgage or other lien on property as collateral for the 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 if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.

2. Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.

3. Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.

4. Discharge debts that arise after bankruptcy has been filed. How can you save your assets? Bankruptcy is a federal legal process for debt management available to most individuals and businesses. Successfully completing a bankruptcy case allows individuals and businesses to either eliminate or reorganize most of their debt. The bankruptcy laws are contained in 11 U.S.C. Sec. 101 et. seq.

When should I consider bankruptcy?  You should consider bankruptcy when:

1. you’ve been unemployed for several months and your prospects are questionable.

2. it becomes evident you cannot pay your bills as they come due.

3. you start considering using your VISA card to pay your MasterCard.

4. you receive a letter from your mortgage company threatening foreclosure.

5. you fear your car will be repossessed.

6. your car HAS been repossessed.

7. you’re considering a home equity loan to consolidate your bills.

8. you’re considering cashing in your 401(k) or your IRA.

9. you’re worried about protecting other assets.

10. a creditor is threatening or has filed suit.

11. you have significant IRS debt.

12. you just can’t abide any more collection letters and phone calls.

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Are there alternatives to bankruptcy? Of course. Some people have successfully managed their finances through nonprofit credit counseling centers. Sometimes a payment plan can be negotiated directly with a creditor. Obtaining loan extensions, compromises and workout agreements require negotiation skills and experience. These alternatives may alert your creditors to the existence of nonexempt property that the creditor could reach and can involve considerable expenses. You also have the option of doing nothing, which may entail certain risks. Creditors can obtain court judgments on the debt and then attempt to collect the judgment. Some states allow creditors to satisfy their judgments out of the debtor’s property, including bank accounts and certain personal property. If you sell real property after the judgment is filed, you will most likely have to satisfy the judgment out of the proceeds of the sale. Judgment creditors cannot, however, foreclose on your homestead to satisfy the judgment, and they cannot garnish your wages.

What kinds of bankruptcy are available?  There are five kinds of bankruptcy:

Chapter 7 – also known as “straight” bankruptcy.

Chapter 9 – reorganization for municipal entities.

Chapter 11 – reorganization for businesses and for individuals with excessive debt.

Chapter 12 – reorganization for family farmers.

Chapter 13 – reorganization for individuals with a regular source of income Most individuals and couples file either a Chapter 7 case or a Chapter 13 case.

Do I need an attorney to file bankruptcy? No, but the process can be intimidating, and complications can cause dire results. Try to use an attorney if possible.

What is a Chapter 7 bankruptcy? The bankruptcy laws are designed so that all debtors emerge from bankruptcy with sufficient assets to make a fresh start. These assets are called exempt property. Chapter 7, also known as “straight” bankruptcy, requires that you turn over all nonexempt property to a bankruptcy trustee, who then converts it to cash for distribution to your creditors.

What is a Chapter 13 bankruptcy? When you file a Chapter 13 case, you agree to pay over to the Chapter 13 trustee a portion of your disposable income each month for 3 to 5 years.

Will the bankruptcy stop bill collectors from calling? Yes. A provision of the Bankruptcy Code stops these calls.

Will bankruptcy stop a wage attachment? Yes, including IRS wage attachments.

Will bankruptcy stop a foreclosure? Temporarily, yes. But, not forever.

Will bankruptcy stop a lawsuit? Bankruptcy stops most civil lawsuits, including most IRS proceedings.

Is it true I can cancel all debts by filing bankruptcy? The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond her ability to repay the debt should receive a fresh start through the discharge of debts.

Is alimony dis-chargeable? Alimony, maintenance and child support payments generally are not dischargeable.

Will bankruptcy remove a lien? Under some circumstances, once the bankrutcy proceedings have started, a special motion can be filed to remove certain liens.

Can I discharge student loans? Generally, student loans are not discharged in bankruptcy.

Can I discharge taxes? In most instances, taxes owed to the federal government are not discharged unless they are more than 3 years old.

Will bankruptcy affect my job? Your employer cannot fire you for filing bankruptcy.

What happens to my personal property, real property and other assets? You are required to file a schedule with the court describing all of your assets. Certain property is either excluded from the bankruptcy or exempt, and you will be able to keep that property.

Will I have to go to court? About 4 to 6 weeks after filing the bankruptcy petition, you will have to attend a hearing presided over by a bankruptcy trustee.

What if someone who owes me money files bankruptcy? If you are listed as a creditor in the case, you will receive notice of the bankruptcy from the court in which the case was filed.

My employer filed bankruptcy. How do I get paid? If you are a union employee, contact your union. If not, file a proof of claim for any unpaid wages, vacation benefits, etc. owed from before the date of filing.

What should I do to prepare for filing bankruptcy? First, you should consult with an attorney. An attorney can help you plan for the bankruptcy, decide when to file a bankruptcy petition, or even avoid filing for bankruptcy.

If you decide to file a bankruptcy petition, you should:

1. Stop using your credit cards. If you charge up your credit cards knowing that you’re going to file bankruptcy, the debt may not be discharged. Also luxury purchases over $1,150 and cash advances totaling more than $1,150 within 60 days before the bankruptcy filing are not dis-chargeable.

2. Don’t transfer your assets to friends, family and business associates to protect the assets from your creditors. The transfer may be considered a fraudulent conveyance. If it is, you may lose both the property and your right to a bankruptcy discharge. Instead, consult an attorney. There may be legitimate ways to save the property.

3. Don’t destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result.

4. Carefully choose the creditors you pay. Some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away.

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