What Can Bankruptcy Do for Me? ^ Back to Top Bankruptcy may make it possible for you to:
What Bankruptcy Cannot Do: Bankruptcy cannot, however, cure every financial problem. ^ Back to Top Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
What Different Types of Bankruptcy Cases Should I Consider? ^ Back to Top There are four types of bankruptcy cases provided under the law: Chapter 7 is known as ''straight'' bankruptcy or ''liquidation.'' It requires a debtor to give up property which exceeds certain limits called ''exemptions'', so the property can be sold to pay creditors. Chapter 11, known as ''reorganization'', is used by businesses and a few individual debtors whose debts are very large. Chapter 12 is reserved for family farmers. Chapter 13 is called ''debt adjustment". It requires a debtor to file a plan to pay debts (or parts of debts) from current income. Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly. Chapter 7 (Straight Bankruptcy) In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. If your income is above the median income for the family your size of your household in your state, you may have to file a Chapter 13 bankruptcy. A higher income consumer must fill out a "means test" requiring detailed information about income and expenses. If, under the standards in the law,the consumer is found to have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that the consumer can not file a Chapter 7 case, unless there are special extenuating circumstances. There is no minimum dollar amount of debt required before you are allowed to file bankruptcy. There are, in fact, many reasons that a person with little to moderate debt may still want file bankruptcy. If you'd like to try credit counseling first, I recommend Consumer Credit Counseling Services of Hawaii. (I have no affiliation or connection with this organization) The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for ''exempt'' property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. Who can File Chapter 7 Bankruptcy? ^ Back to Top An individual who files
a voluntary Chapter Seven bankruptcy petition must, first of all,
either have a "domicile " in the U.S.-- that is, a place
of official or legal residence-- have a place of business in the
U.S., or own property in the U.S. Chapter 13 (Reorganization) ^ Back to Top In a Chapter 13 case
you file a ''plan'' showing how you will pay off some of your past-due
and current debts over three to five years. The most important thing about a Chapter 13 case is that it will allow
you to keep valuable property, especially your home and car, which might otherwise be lost, if you can make the payments
which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular montly
payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind. (1) own your home and
are in danger of losing it because of money problems;
You will need to have
enough income in Chapter 13 to pay for your necessities and to keep
up with the required payments as they come due. There are several situations
where a Chapter 13 is preferable to a Chapter 7. However, for the vast majority of individuals who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice. What Does It Cost to File for Bankruptcy? ^ Back to Top
The filing fees are as follows:
Chapter 7- $299.00; Chapter 13- $274.00, whether for one person or a married couple.
The court may allow you to pay this filing fee in installments if
you cannot pay all at once. If you are unable to pay the filing fee in installments, you may request that the court waive the filing fee. If you hire an attorney you will also
have to pay the attorney's fees you agree to.
My fees for single person, basic Chapter 7 bankruptcy start at $1,500 (all fees inclusive).
Prices will vary depending on the complexity of your bankruptcy. What Must I Do Before Filing Bankruptcy?? ^ Back to Top
You must receive budge 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. If you decide to file bankruptcy, you will need to file with the bankruptcy forms in your case a certificate from
the agency stating that you received the counseling. If you file bankruptcy with this office, we will make arrangements for you credit counseling. If you decide to go ahead with the bankruptcy, you should be very careful in choosing an agency for the required counseling.
It is extremely difficult to sort out the good counseling agencies fro the bad ones. May agencies are legitimate, but many are
simply rip-offs. And being an "approved" agency for bankruptcy counseling is no guarantee that the agency is good. It is also
important to understand that even good agencies won't be able to help you much if you're already too deep in financial trouble.
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.
What Property Can I Keep? ^ Back to Top In a Chapter 7 case,
you can keep all property which the law says is ''exempt'' from
the claims of creditors. 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 now. 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. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $500,000 house with a $400,000 mortgage, you count your exemptions against the $100,000 which is your equity if you sell it. 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? ^ Back to Top 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. Can I Own Anything After Bankruptcy? ^ Back to Top Yes! Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. Bankruptcy is often best used to preserve what you do have rather than after everything is gone. 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? ^ Back to Top Yes, with some exceptions.
Bankruptcy will not normally wipe out: (1) money owed for child
support or alimony, fines, and some taxes; (2) debts not listed
on your bankruptcy petition; (3) loans you got by knowingly giving
false information to a creditor, who reasonably relied on it in
making you the loan; (4) debts resulting from ''willful and malicious''
harm; (5) student loans owed to a school or government body, except
if: -- the court decides that payment would be an undue hardship;
(6) 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). My House is in Foreclosure. How Can Bankruptcy Help Me? ^ Back to Top If your home is in foreclosure, a bankruptcy can help you in 3 different ways:
1. If the reason you are behind in your mortgage is temporary, the bankruptcy can impose a repayment plan to cure your arrears that, if approved by the court, the lender MUST accept. Generally, you must be able
to catch up on all your back mortgage payments within 5 years. Discharging Student Loans ^ Back to Top A discharge (under section 727, 1141, 1228(a), 1228(b), or 1328(b)) does not discharge an individual debtor from any debt - "for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents". Title 11 Section 523(a)(8) Exceptions to discharge . As of October 7, 1998, Student Loans are only dischargeable if: You can prove that having to repay it would impose an "undue hardship" on you (this is very rarely granted by courts and the burden of proof is substantial), OR, To prove undue hardship one basically has to show the following: 1. That you cannot maintain, based on current income and expenses, a 'minimal' standard of living for yourself and your dependents if forced to repay the loans; 2. That additional circumstances
exist indicating that this state of affairs is likely to persist
for a significant portion of the repayment period of the student
loans; and, Although "undue hardship" is not defined in the Bankruptcy Code, courts have recognized that " `[t]he existence of the adjective `undue' indicates that Congress viewed garden-variety hardship as insufficient excuse for a discharge of student loans. Courts require more than temporary financial adversity, but typically stop short of utter hopelessness". (See, Matter of Roberson, 999 F.2d 1132 (7th Cir. 1993).) Absent a showing of substantial hardship, that will allow the discharge of the loan in whole or in part, the best that bankruptcy can do with respect to student loans may be to eliminate other debts that compete for the borrower's dollars, or to provide a measure of peace during a Chapter 13 plan. Some courts will permit debtors to separately classify student loans in Chapter 13 and pay them a greater percentage than other non-secured debt. Will Filing Bankruptcy Stop My Bill Collectors from Taking Action? ^ Back to Top Yes. When you file bankruptcy, Federal law imposes an "automatic stay" which prohibits your creditors from taking any action to collect debts against you including court judgments and tax debts during the pendency of the bankruptcy. For instance, if you have been served by one of your creditors to appear in court over a debt, the bankruptcy filing will stop this lawsuit. Any wage garnishments or repossession efforts are also halted. However, once the bankruptcy is over, a creditor holding a claim that was not discharged may proceed to collect on the debt. Also, under some circumstances a secured creditor may proceed to collect on the lien he has on the filer's asset during the bankruptcy proceeding, but may only do so by filing a court motion and by getting the approval of the bankruptcy court first. Any violation the automatic stay may give rise to a complaint for damages against the collection party. How Quickly Will My Creditors Get Notice of My Bankruptcy? ^ Back to Top Within a week of the filing of your petition, the bankruptcy court clerk mails your creditors notice of the filing and the imposition of the automatic stay. Until the creditors get notice, it may be necessary for you supply the creditor with the docket number and date of your bankruptcy. Once they have been given notice, they must stop collection efforts against you or may be liable for court sanctions. Thankfully, for the vast majority of people, once their bankruptcy petition is filed that is the last they hear from their unsecured creditors. Will I Have to Go to Court? ^ Back to Top In most bankruptcy cases, you only have to go to a proceeding called the ''meeting of creditors'' (also called a "341 meeting") 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 before a judge at a hearing. 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. Will Bankruptcy Affect My Credit? ^ Back to Top There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse. The fact that you've filed a bankruptcy can appear on your credit record for ten years. But since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you likely be able to get credit immediately after filing (although fees and interest will be higher). I am in the U.S. Military. How Will Bankruptcy Effect My Security Clearance? ^ Back to Top From the U.S. Army Judge Advocate General (JAG) website:
What is a 1099-C? What does it have to do with my debts and why is a collection agency threatening me with it? ^ Back to Top A 1099-C is a Federal (IRS) tax form for cancellation of debts. Sometimes a creditor, after trying to collect from you, will decide that the debt is uncollectable and will "charge off" the debt in order to get a tax break. The IRS normally counts debts that you receive a 1099-C for as income, thus requiring you to pay taxes on it. However, if the debt is discharged in bankruptcy before the 1099-C is issued or if you were "insolvent" when the 1099-C was issued, the "charged-off" debt is not counted as income for income tax purposes. What Else Should I Know? ^ Back to Top Utility services--Public utilities, such as the electric company, cannot 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--An employer or government agency cannot discriminate against you because you have filed for bankruptcy. 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. How Do I Find a Bankruptcy Attorney? ^ Back to Top As with any area of the
law, it is important to carefully select an attorney who will respond
to your personal situation. The attorney should not be too busy
to meet you individually and to answer questions as necessary. The
best way to find a trustworthy bankruptcy attorney is to seek recommendations
from family, friends or other members of the community, especially
any attorney you know and respect. You should carefully read retainers
and other documents the attorney asks you to sign. You should not
hire an attorney unless he or she agrees to represent you throughout
the case. In bankruptcy, as in all areas of life, remember that
the person advertising the cheapest rate is not necessarily the
best. Many of the best bankruptcy lawyers do not advertise at all.
Paying for debt counseling is almost never a good idea. There is
almost nothing that a paid debt counselor can offer other than a
recommendation about whether bankruptcy is appropriate and a list
of highly priced debt consolidation lenders. There is no good reason
to pay someone for this service. A reputable attorney will generally
provide counseling on whether bankruptcy is the best option. This
avoids the double charge of having to pay a counselor and then an
attorney. If bankruptcy is not the right answer for you, a good
attorney will offer a range of other suggestions. When first meeting a
bankruptcy attorney, you should be prepared to answer the following
questions: What types of debt are causing you the most trouble?
What are your significant assets? How did your debts arise and are
they secured? Is any action about to occur to foreclose or repossess
property or to shut off utility service? What are your goals in
filing the case?
Can I File Bankruptcy Without an Attorney? Although
it may be possible for some people to file a bankruptcy case without
an attorney, it is not a step to be taken lightly.
The process is difficult and you may lose property or other rights if you do not know the
law. It takes patience and careful preparation. Chapter 7 (straight
bankruptcy) cases are easier. Very few people have been able to
successfully file Chapter 13 (debt adjustment) cases on their own.
Remember: The law often changes. Each case is different. A decision to file for
bankruptcy should be made only after determining that bankruptcy
is the best way to deal with your financial problems. Can you file bankruptcy
for me if I don't live on Oahu? ^
Back to Top Although my practice is based in Honolulu, I can do
bankruptcies on the other islands. I generally charge $200 extra for travel expenses. Residents of Molokai and Lanai need to attend their §341 meeting on Maui
or Oahu. FAQ Information from:
Collier Forms Manual @ CS4.03-1 @ CS4.03-1: Client Education Brochure.
This information is meant to give you general information and not
to give you specific legal advice. * Adapted by the National Consumer
Law Center from a pamphlet prepared by Legal Services, Inc., under
a grant from the Pennsylvania Law Coordination Center, and from
National Consumer Law Center, Surviving Debt (1992) |
