If you would like to schedule an appointment for a free initial consultation in our office, or if you require assistance in any other way, please do not hesitate to call us at 512-247-7086. If it will be difficult for you to come into the office for a consultation, we will be happy to assist you over the telephone with completion of your bankruptcy worksheets.
- Ron Satija
REVENTING BANKRUPTCY
BANKRUPTCY IN GENERAL
WHAT HAPPENS TO MY HOUSE AND CAR?
CAN HOME FORECLOSURE BE PREVENTED?
PROTECTION OF PROPERTY FROM REPOSSESSION
CAN BANKRUPTCY HELP TAX MATTERS?
CAN CREDITOR HARASSMENT BE STOPPED?
CHAPTER 13: DEBT CONSOLIDATION
WHAT IS CHAPTER 13 DEBT CONSOLIDATION?
CHAPTER 13 VS. PRIVATE DEBT CONSOLIDATION
ABOUT WAGE EARNER REPAYMENT PLANS
CHAPTER 7: LIQUIDATION
WHAT ARE THE MOST COMMON REASONS FOR FILING CHAPTER 7?
ADVANTAGES AND DISADVANTAGES OF CHAPTER 7
CHAPTER 11: REORGANIZATION
ADVANTAGES AND DISADVANTAGES OF CHAPTER 11
OTHER CONSIDERATIONS
EXEMPT VS. NON-EXEMPT PROPERTY
DOCUMENTS REQUIRED TO FILE BANKRUPTCY
HOW WILL MY CREDIT BE AFFECTED?
PREVENTING BANKRUPTCY
MANAGING YOUR DEBT
If you find you’re getting deeper and deeper in debt, there are several steps that professional debt counselors recommend to help stop the drain and turn it around. While some counselors may recommend you tear up all your credit cards, it’s difficult to get a loan, rent a car, or reserve a hotel room without an established credit history or credit card. It IS a good idea to close credit accounts and destroy those credit cards that have high interest rates, annual fees, low credit limits, no grace periods, and require collateral. Another step in taming your debt picture is to make a record of your daily expenses and eliminate unnecessary spending. Keeping track of where your money is going and examining how you’re spending it can be quite an eye-opener. Make a list of how much money you owe, to which creditors, and what the interest rate is. See if you can pay off high-rate items. Put yourself on a budget or spending plan that takes into consideration your income and estimated monthly expenses. At the end of the month, see how close you came to staying within your budget. Budgeting may be the best way to keep track of where your money’s going, as well as finding out where you may need to do to cut back unnecessary spending.ARRANGING NEW TERMS
If you’ve gotten yourself into financial difficulty, you may think that bankruptcy is your only option. That’s not true. Sometimes people lose their jobs, have unexpected medical expenses, or are faced with a loss in income for a variety of reasons. One option is to talk with your creditors to discuss possibly changing the terms of your original agreement. If you have some income or have assets you can sell, you may be a lot better off negotiating with your creditors than filing for bankruptcy. They may be willing to accept less than you owe in full, or they may allow you to repay your debts over a longer period of time. If you have some money coming in, this may buy you the time you need until you can get back on your feet again financially. Chapter 13 bankruptcy allows you to keep your property and set up a repayment plan with your creditors to pay out your debt in installments over three to five years. For more information about how to arrange new terms with your creditors, contact a financial planner or an attorney.BANKRUPTCY IN GENERAL
BANKRUPTCY OPTIONS
If your finances are in shambles, and you’re at your wit’s end, you may be ready to file bankruptcy. The bankruptcy code offers four different types of bankruptcy: Chapters Seven, Eleven, Twelve and Thirteen. Chapter Seven is also known as “liquidation” or “straight bankruptcy,” and is meant for those with large amounts of unsecured debt. Chapter Eleven involves a “reorganization” of finances and is especially helpful for corporations in trouble. Chapter Twelve bankruptcy is a special code for family farmers whose debts don’t exceed one and a half million dollars. Chapter Thirteen bankruptcy, also known as “debt consolidation,” generally allows the debtor to keep all property and establishes a debt repayment plan which must be approved by an attorney, the debtor, and a trustee. Consult an experienced attorney in your area for more information about your bankruptcy options.WHAT HAPPENS TO MY HOUSE AND CAR?
You probably know that if you fall behind in paying off a loan that’s secured by a lien against your house or car, they can be repossessed. After they’re repossessed, they’re sold at a public auction, and the proceeds are used to pay your debts. If the sale doesn’t bring in enough money to pay off what you owe, you could be sued by your creditors for the difference. Filing for bankruptcy is one way to cancel or postpone the debt, and release you from your obligation to pay it off. If you’ve filed for reorganization, rather than liquidation, you may have the opportunity to stop repossession of your house or car by paying off the debt under controlled circumstances with terms you can afford. In some cases, it may be possible to cancel the lien altogether. Even if your house or car has been repossessed, if it hasn’t been sold yet, there may be a chance you can get it back. Filing bankruptcy usually means an automatic stay on having to make payments, but bankruptcy laws are complicated, and each state has its own requirements, in addition to those of the federal bankruptcy code. It’s a good idea to consult an attorney if you’re deeply in debt and are considering bankruptcy.CAN HOME FORECLOSURE BE PREVENTED?
If you have a home mortgage and fall behind on your payments, the mortgage holder may declare the loan in default and begin foreclosure proceedings. In addition, the debt will be what is known as “accelerated,” meaning that the entire balance, not just your monthly payment, is due in full immediately. You’ll be sent a notice of foreclosure proceedings. One option to avoid foreclosure is to contact HUD, the federal Department of Housing and Urban Development, for assistance with your mortgage. This may temporarily delay foreclosure while HUD reviews your file. Another option is trying to renegotiate terms with your lender. Unless you’re able to re-negotiate the loan, in order to stop foreclosure you’ll either have to pay off the balance or file bankruptcy. If you decide to file for bankruptcy, you must do so prior to the foreclosure sale, in order to halt foreclosure. If you successfully file Chapter Thirteen, you’ll be given a reasonable period of time to bring your loan payments up to date and save your property. For more information on avoiding foreclosure on a home, contact a bankruptcy or real estate attorney.PROTECTION OF PROPERTY FROM REPOSSESSION
If you as a buyer have failed to make your loan payments on goods or property you’ve purchased and put up as collateral, a creditor has the power to “repossess” the goods or property. There are two kinds of loans: secured and unsecured. Secured loans, such as for a house or car, require the goods that are purchased to be considered as collateral. Unsecured loans, such as for credit card purchases, do not. If you fall behind on payments on a secured loan, the creditor can, after notifying you, take back the goods and sell them to pay off your remaining debt. If it’s not enough to cover what you owe, you can be sued for the rest. A lien gives the creditor the right to repossess the property or force its sale if you don’t pay the debt. Bankruptcy by itself doesn’t eliminate liens, but during bankruptcy you may be able to eliminate, or at least reduce, liens on secured property. There are several procedures you can use, but they’re neither automatic nor required– you have to request them. If you don’t take any steps to eliminate the lien, the creditor is free to take the property or force its sale. Consult a bankruptcy attorney to find out how your secured debts will be affected if you file bankruptcy.CAN BANKRUPTCY HELP TAX MATTERS?
If you have a lot of debt, you also may owe money to government agencies in the form of back taxes. Certain categories of debts can’t be discharged in Chapter Seven bankruptcy, including taxes less than three years past due. However, filing bankruptcy immediately implements a “stay” that provides protection, including stopping collection activities for taxes you owe, so taxing authorities may have less power over you after you’ve filed– at least for a while. A Chapter 13 bankruptcy filing can allow you to pay out your tax obligation in equal monthly payments, without incurring further interest or penalties. Both Chapter Seven and Chapter 13 can reduce or eliminate your tax debt that is more than three years old. Keep in mind that although bankruptcy is one solution if you’re facing extreme hardship, it does have long-term consequences. You should consult a financial expert if you’re considering resorting to bankruptcy as a way to solve your economic problems or tax liability.CAN CREDITOR HARASSMENT BE STOPPED?
If you find you’re having to deal with creditors who are harassing you because you’re behind on your payments, there are several strategies for dealing with them. The most drastic, of course, is to file for bankruptcy, either a Chapter Seven liquidation or Chapter 13 repayment plan. Once you file, creditors are formally notified you are in bankruptcy, and collection immediately ceases until your case has been discharged. However, bankruptcy can have serious, long-term consequences, so it shouldn’t be undertaken lightly. Short of filing for bankruptcy, you might want to consider some other options to get creditors off your back. First, pay your bills. If you’re having financial difficulties, you may want to negotiate with your creditors for more time or other eased terms. Under federal law, bill collectors can’t threaten you or invade your privacy. Even if you owe them money, you can demand that they stop phoning or writing you without having to file bankruptcy. For information or help in dealing with creditor harassment, contact a financial adviser or an attorney.LAWSUITS AND JUDGEMENTS
As soon as you’ve officially filed for Chapter Seven liquidation or Chapter Thirteen debt repayment, all lawsuits against you are put on hold, and no further suits can be filed until your case is discharged. If there’s a judgement against you, its collection is also put on hold. If your wages are being garnished, that’s temporarily halted, as well. This isn’t true if you’ve been found liable for damages while driving while intoxicated, or other damages as a result of willful and malicious injury to a person or property, or have been ordered to pay other criminal restitution. You’re also not exempt from paying most fines, traffic tickets, or judgements as a result of marital settlements, such as alimony or child support. In Chapter 13, you may be able to pay out the judgement over a period of up to five years. If you’re facing a large debt as a result of a lawsuit or judgement against you, bankruptcy may be one option for you, depending on the circumstances. It’s a good idea to consult a bankruptcy attorney to see how bankruptcy could benefit you, and what long-term effects there might be, as well.CHAPTER 13: DEBT CONSOLIDATION
WHAT IS CHAPTER 13 DEBT CONSOLIDATION?
Chapter 13 of the federal bankruptcy code allows debtors who have a steady income to submit a plan for the installment payment of outstanding debts. Unlike Chapter Seven liquidation, if the court approves the plan and you stick with it, your assets won’t be sold by the court to satisfy your debts. You still must repay all or part of your debts, but the court can make it much easier for you. In a Chapter 13 debt adjustment, the debtor is discharged shortly after making the last payment according to an approved repayment plan. The payments must be at least as much as would have been paid to creditors in a Chapter Seven case, but the creditor must accept the court-approved installments. In order to file Chapter 13, you must have regular income of some sort, not necessarily a job, and you can’t owe more than 900,000-dollars in secured debt, such as car or home loans, and more than 300,000 in unsecured debt, such as credit cards. Favorable repayment schedules are almost always extended to help you meet your obligations, and your debts are frozen from the time you file. Debts must be paid over a three- or five-year period, although exceptions can be made. Keep in mind that Chapter 13 bankruptcy will remain on your consumer credit report for seven years. To find out whether Chapter 13 is a good option for you to consider, contact a bankruptcy attorney or financial adviser.CHAPTER 13 VS. PRIVATE DEBT CONSOLIDATION
Filing for Chapter 13 bankruptcy repayment may be the best, or only, solution for extreme financial hardship. However, keep in mind that filing for bankruptcy of any kind can have long-term consequences. You may want to consider other ways of handling your debts, such as debt consolidation. If you’re paying high interest rates, and you have collateral available, such as a car that’s paid for, check with a bank or credit union to see whether it can lend you money with your car as collateral to pay off other debts at a lower overall interest rate. Another way is to use the equity in your home to obtain a loan at a lower interest rate to pay off other, higher-rate debts. Beware of private loan companies that use high-interest, so-called “bill-payer” or “debt consolidation” loans. Also stay away from so-called “financial counselors” who charge large fees. There are nonprofit credit counseling services that, for reasonable fees, can advise you how to lower your monthly bills and can even contact your creditors and negotiate with them for you. They also can advise you on filing Chapter 13 versus private debt consolidation. You can contact a bankruptcy attorney for more information if you’re thinking of filing for Chapter 13.ABOUT WAGE EARNER REPAYMENT PLANS
Chapter 13 bankruptcy, involves a consolidation of debt and an organized plan for creditor repayment. The federal bankruptcy court will appoint a trustee to review all your debts and assets. You must then propose a plan that schedules repayment to your creditors over a period of up to five years. In order to be eligible to file for Chapter 13 bankruptcy, you must be a professional with regular income, a wage-earner, or a small business owner, and your amount of debt can’t exceed specific Chapter 13 law requirements. Consult an experienced attorney in your area for more information about Chapter 13 bankruptcy.CAN FORECLOSURE BE STOPPED?
Chapter 13 was designed to encourage individuals with ongoing income who have encountered financial difficulties to pay their debts, rather than seek a Chapter Seven liquidation to cancel the debts. The incentive is that the individual may keep property that normally would be foreclosed on or liquidated under Chapter Seven. “Foreclosure” is the legal process by which a bank, mortgage company, or individual that holds a lien against land or other property may, through the court, take over the property and sell it, with the proceeds going to pay on a defaulted loan. If you file for Chapter 13 before the sale, it’ll stop the foreclosure, as long as the terms of the repayment plan are being met. Installment payments under Chapter 13 also could be considerably less than what your monthly payments had been. For more information on whether you should file for Chapter Thirteen to avoid foreclosure, consult a bankruptcy attorney.REDUCING MONTHLY PAYMENTS
One advantage of filing Chapter 13 bankruptcy is that it’s one way to refinance your debt in monthly installments, even though your creditors had not originally agreed to such installment payments. The amount you agree to pay each month depends on several factors and is determined on a case-by-case basis by the court. There are certain debts that, by law, you must pay regardless. Before going into effect, the repayment plan must be confirmed by the court. When it’s confirmed, your debts are payable in the manner specified in the plan. The amount of your minimum monthly payment is based on such things as whether you’re planning full or partial repayment, how much of your debt is secured, and how much you owe in non-exempt debts, such as taxes, mortgage payments, and student loans. A repayment plan usually is set up for 36 months, and it may not extend longer than 60 months. Keep in mind that filing any form of bankruptcy can have long-lasting consequences. For more information about how you can reduce, or possibly eliminate, your debt load through Chapter 13 bankruptcy, contact a bankruptcy attorney.CHAPTER 7: LIQUIDATION
WHAT IS CHAPTER 7 BANKRUPTCY?
Chapter Seven, also known as “straight” bankruptcy, is a legal process whereby an individual’s property is sold by a bankruptcy trustee, and the money from the sale is distributed among creditors to pay off debts. The remaining debts are discharged. Chapter Seven was designed to help people who’ve gotten into financial trouble because of difficult circumstances– such as job loss or medical expenses– get a fresh start. You may be employed, self-employed, or unemployed when filing Chapter Seven, and you don’t have to be insolvent. Filing Chapter Seven puts into effect something called an “automatic stay,” which immediately stops creditors from trying to collect what you owe them. There’s no limit on the total amount of debt you may owe in order to qualify for Chapter Seven relief. You’re allowed to keep certain “exempt” property during the bankruptcy proceedings. Exempt property, according to the law, is that which is necessary for the support of you and your dependents. Chapter Seven requires you to file extensive information about your financial status with the court, which then appoints a trustee to oversee your case. After your non-exempt property is sold and your creditors have been paid by the trustee, you’re discharged from the unpaid balance of most debts, except those specified by law. There are long-term consequences to filing Chapter Seven, including a listing on your consumer credit record for ten years. To find out more about Chapter Seven, contact an attorney who specializes in bankruptcy.WHAT ARE THE MOST COMMON REASONS FOR FILING CHAPTER 7?
By filing Chapter Seven bankruptcy, you can wipe out most of your debt and begin to establish a good credit rating. The most common reasons for filing include severely over-extended credit, marital difficulties, huge medical fees, unemployment, or any massive unexpected expense. You’ll then have the opportunity to create a new financial plan and change your approach to budgeting. And, perhaps best of all, Chapter Seven bankruptcy can help prevent creditors from harassing you by phone and mail. If you’re considering filing for Chapter Seven bankruptcy, consult an experienced attorney in your area.ADVANTAGES AND DISADVANTAGES OF CHAPTER 7
Chapter Seven bankruptcy has many advantages that you should consider if you’re in financial distress. Otherwise known as “liquidation,” Chapter Seven bankruptcy allows you to wipe out most of your debt and begin to establish a good credit rating. You’ll have the opportunity to create a new financial plan and change your approach to budgeting. And, perhaps best of all, Chapter Seven bankruptcy can help prevent creditors from harassing you by phone and mail. Filing Chapter Seven will be listed on your credit rating for up to ten years, but will not affect your score for that long and some debts may not be cleared, including student loans, court fines, taxes, and some others. Consult an experienced attorney in your area for more information about the advantages and disadvantages of Chapter Seven.CHAPTER 13 VS. CHAPTER 7
If you’re planning to file bankruptcy, you have more than one option. What’s known as “Chapter 13 reorganization” bankruptcy might be a better solution for you than “Chapter Seven liquidation.” Under Chapter Seven, some or all of your property will be sold, and the money will be used to pay your creditors. With Chapter 13, you can keep your property, as long as you make the payments in your proposed repayment plan. There are some other advantages to Chapter 13 over Chapter Seven. For example, creditors may not collect from your cosigners until it’s established that the creditors won’t get the money you owe them first. With Chapter Seven, creditors can demand payment from co-signers up front. There’s more leeway under the law with Chapter 13, as well. If you gave creditors false financial information when you applied for credit or used other fraudulent means, individual creditors can’t require you to pay in full under Chapter 13, but under Chapter Seven, you may be forced to pay debts you owe those creditors, anyway. You can only file Chapter Seven once every eight years, but you can file Chapter 13 more often. It’s considered better to have a Chapter Thirteen on your consumer credit record, rather than a Chapter Seven, because Chapter 13 implies you may have paid back some or all of your debts. For more information, consult an experienced bankruptcy attorney.CHAPTER 11: REORGANIZATION
REORGANIZING YOUR BUSINESS
Under Chapter Eleven, a corporation, small business, or individual who has incurred sufficient debt may file for protection from creditors while it reorganizes. During this time, the business is protected by, and under the supervision of, the bankruptcy court and may continue to operate. Individuals, partnerships, and corporations in business may reorganize under the Bankruptcy Act. The first step is to file a plan with the bankruptcy court. The plan may be filed by the debtor, or any party of interest, or by a committee of the creditors, and divides ownership interests and debts into those that will be affected by the plan’s adoption and those that won’t. Then it must specify what will be done for those affected. The plan must be approved by the bankruptcy court. Afterwards, owners and creditors have to stick to the plan and can’t go back to their original positions prior to the filing.WHAT IS CHAPTER 11?
Chapter Eleven is one of four sections of the Federal Bankruptcy Code. Chapter Eleven was designed to help businesses in financial trouble restructure their organization and finances so they may continue to operate, rather than be liquidated. It also provides for the adoption of extended time payment plans for individual debtors who owe unsecured debts of less than 100,000 dollars and secured debts of less than 350,000 dollars. Individuals, partnerships, and corporations may be reorganized, rather than have their assets liquidated. In a Chapter Eleven proceeding, a reorganization plan is filed, either by the debtor, the creditors, or both. After the plan is submitted, it must be approved, or “confirmed” by the court. Once that occurs, the debtor and creditors must go by the terms spelled out in the plan. During the bankruptcy proceedings, the individual or business may continue doing business as usual, as long as regular operating reports are provided. For more information about filing Chapter Eleven for a business or an individual, contact a bankruptcy attorney.ADVANTAGES AND DISADVANTAGES OF CHAPTER 11
Chapter Eleven is designed to help a business recover from financial distress. It allows the company to reorganize operations and continue to function while under supervision of the bankruptcy court. Congress enacted Chapter Eleven because it believed that a rehabilitated business is better for the economy than the unemployment and waste of assets that occur when a business goes under. While in Chapter Eleven reorganization, creditors must obey a court-ordered stay and refrain from taking action against the business. Unlike other forms of bankruptcy, under Chapter Eleven, the CREDITORS also have a right to file a plan of reorganization, and creditor interests and other claims are represented by committees. Also in Chapter Eleven, CO-DEBTORS are not protected by the automatic stay. It’s assumed under the law that most business failures result from unavoidable market changes, rather than from incompetent management or fraud, so an individual debtor is usually allowed to remain in control of the business during reorganization, unless the court finds just cause or other reason to have a trustee run it. Of course, filing Chapter Eleven will affect the business’s credit rating, as well as impact its shareholders.OTHER CONSIDERATIONS
SECURED VS. UNSECURED DEBTS
When filing for bankruptcy, it’s crucial that you know the difference between unsecured and secured debts. You’ll have to list these in your bankruptcy filings. An “unsecured” debt is one for which you haven’t pledged any collateral. There’s no property for the creditor to repossess if you fail to repay. Unsecured debts include bank credit cards, medical and legal bills, store charge accounts, and utility bills. Most unsecured debts are nullified by bankruptcy, although more and more credit card companies are challenging discharge of these debts in court. A “secured” debt is one for which you’ve put some of your property up as collateral to ensure that you’ll fulfill your obligation to a creditor. A debt is also considered secured if a creditor has filed a lien against your property. To completely eliminate a secured debt, you may have to give up the property, pay its market value, or agree to let the debt survive your bankruptcy. In most cases, you’ll either have to surrender the collateral to the creditor or make arrangements to pay for it during or after bankruptcy. A few secured debts are exempt, including essential furniture, clothing, tools of your trade, personal effects, and appliances. If you’ve put your home up as collateral for a debt, Chapter Seven bankruptcy won’t stop a mortgage foreclosure. The few states that had so-called “homestead” laws have rescinded them in recent years. If you have nonexempt equity in your home, you’ll lose your home if you file for Chapter Seven. These are important things to think about when considering whether or not to file for bankruptcy. If you’re uncertain, see a bankruptcy attorney.EXEMPT VS. NON-EXEMPT PROPERTY
If you’re planning to file for bankruptcy, you should be aware that you may face losing some or all of your property. However, even if you file under Chapter Seven liquidation, there’s some property you can claim as exempt from being sold to pay your creditors. Exempt property usually includes equity in your home, personal items and clothing, tools of your profession, and modest amounts of household furnishings. The value of individual exemptions varies from state to state, so you should check with an attorney to determine the specific amounts and types of property you’re allowed to keep under Chapter Seven or your state’s law. If you’re concerned about losing your property, and you’re gainfully employed with the likelihood of eventually paying off your debts, you may be better off by filing Chapter 13 instead. This will enable you not to risk losing your property by paying out your debts in monthly installments in a repayment plan that you propose and, if approved, your creditors must accept. For more information on what property is exempt under the various forms of bankruptcy, consult an experienced attorney.CAN I KEEP ANY CREDIT CARDS?
When you file for bankruptcy, you may be able to keep your credit cards in some circumstances. It depends on what your credit card balance is at the time of the bankruptcy, what the company issuing the credit card is willing to do, and how well you convince them you can, and will, pay present and future credit card debt. Under federal law, bankruptcies remain on your consumer credit report for seven years when you file Chapter Thirteen and for ten years when you file Chapters Seven, Eleven, or Twelve. The bankruptcy will first appear on your credit report shortly after you file papers with the court, and even if you later change your mind, or the judge doesn’t grant the bankruptcy, that doesn’t erase the listing. If you want to hang on to some credit cards, you can try during the bankruptcy proceeding to negotiate what is known as “re-affirming the debt” with the credit card holder, meaning you convince them you’ll pay back what you owe. Or you can simply not list that creditor on your bankruptcy paper. If you discharged the credit card debt as a result of your bankruptcy, it may still be possible to get your card back if you voluntarily pay what was discharged. There are other ways to keep credit cards or get new credit after bankruptcy. You can get a “secured” credit card through some banks by depositing money into an account as collateral. The interest rate on these is usually high. You also might try getting one with a co-signer, offer some property as collateral, or agree to a very high rate of interest.DOCUMENTS REQUIRED TO FILE BANKRUPTCY
Filing for bankruptcy, whether it’s a reorganization or a liquidation, requires an enormous amount of paperwork that must be filled out by either you or your attorney. First, there are the initial filing papers petitioning the court. These vary, depending on which bankruptcy section you’re filing under. Then, there is a “Statement of Financial Affairs.” This requires detailed information about you or your company’s background and financial history. There’s also a complete listing of the debtor’s assets and liabilities, along with statements concerning your financial conditions. These are just a few of the forms and some of the information you’ll be required to provide. By the way, when you file the papers with the court, you sign a statement affirming that the information’s correct and complete, under penalty of perjury. If you don’t feel qualified to handle the proceedings yourself, an attorney can take care of it for you. However, you must provide your attorney with all the necessary information, including a list of all the people or companies you owe money to, as well as a complete inventory of your physical assets. You’ll also have to decide which debts you may be exempt from repaying, under terms of the Bankruptcy Code. Be prepared to provide all financial information from the past two years. For more information on what forms you’ll need to file for bankruptcy, contact a qualified attorney.HOW WILL MY CREDIT BE AFFECTED?
Bankruptcies can have a long-term negative impact on your credit. Whether you’re filing as an individual or business, it’s one of the worst negative items you can have on your credit report, and it won’t go away for a long time. Under federal law, it’s on your credit report for seven years when you file Chapter 13 and for ten years when you file Chapters Seven, Eleven, or Twelve. How filing bankruptcy will affect your consumer credit rating depends on several factors. Even if your credit has been good, bankruptcy will be a negative strike against you. If it’s been bad, it will enable you to deal with your debts and eventually be debt-free, which can be the first step toward rebuilding your good credit. In Chapter 13 bankruptcy, once you’ve paid off all or part of your debt, you could file again in two years. However, Chapter Seven liquidation is allowed only once every eight years. For more information on the effect that declaring bankruptcy could have on your credit, contact a credit counselor or a bankruptcy attorney.ARE EMPLOYERS NOTIFIED?
Chapter Seven bankruptcy is a matter of public record, which means the information is accessible to anyone, including employers. However, employers aren’t automatically notified when a Chapter Seven is filed, unless your employer is a creditor or the court needs information about you that only your employer can provide. Your employer may be contacted during your bankruptcy proceedings to confirm your wages or salary. It’s against the law for a private or government employer to fire you, or otherwise discriminate against you, solely because you filed for bankruptcy. Also keep in mind that filing Chapter Seven will be on your consumer credit report for up to ten years. Federal law allows employers to review consumer credit reports. If there are important reasons for not informing an employer in your particular case, you might be able to convince the bankruptcy trustee to use other means to obtain the necessary information about you. For more information about how bankruptcy could affect your employment situation, contact a bankruptcy attorney.WILL I LOSE ANY PROPERTY?
Whether or not you lose property depends on the type of bankruptcy you file. Chapter Seven, also referred to as “straight” bankruptcy, requires the court to liquidate certain property and sell it to pay off your debts. In addition, each state has its own laws specifying which items of property can be sold or are exempt from a forced liquidation. Some states require you to choose either the federal or state exemption requirements; others require the court to use state exemptions. Federal law and some states exempt all personal effects, ordinary household furniture, and clothing, regardless of how much they’re worth, as well as your primary homestead. Other property may be exempt up to a certain value. If you’re a married couple filing jointly, each spouse may claim exemptions, although this is prohibited in some states. Your pension may be exempt if it’s covered by the federal law called ERISA (eh-RISS-uh). If you’re filing Chapter 13 bankruptcy, your property isn’t liquidated. Instead, you file a repayment plan that must be accepted by the court. If you make payments as promised in your repayment plan, you’re normally able to keep your property. For more information about whether or not you’ll lose your property if you file for bankruptcy, contact a bankruptcy attorney.COSTS OF BANKRUPTCY
If you’re considering filing for bankruptcy, keep in mind that you’ll be incurring certain costs that won’t be relieved by the bankruptcy. These include filing fees and court costs, as well as any attorney’s fees. The costs vary, depending on which type of bankruptcy you file and how complex your case is. In a Chapter Seven liquidation, attorneys usually require all or part of their fees up front. In a Chapter 13 reorganization filing, the fees may be included as part of the plan for repayment of debts over time. A Chapter Eleven filing usually implies that the individual’s or company’s debts are substantial, or there’s a large company involved. That means there will probably be significant costs incurred. Any individual or company considering filing for Chapter Eleven needs to take into account what the additional costs will be to go through bankruptcy proceedings when considering whether or not to file. Of course, there also are emotional costs of bankruptcy, which can’t be measured. For more information on what going through bankruptcy might cost, consult an experienced attorney.CHOOSING AN ATTORNEY
If you’re considering filing for bankruptcy, be aware that bankruptcy laws are extremely complex. In addition, laws and procedures change frequently and are subject to differing interpretations. The decision to file a petition for personal or business bankruptcy is one that should be made with much thought and care, because the effects– both positive and negative– will be around for many years to come. Although it’s possible that some individuals may be able to research the law, file the necessary documents, and represent themselves in bankruptcy court, the services of a professional attorney who specializes in bankruptcy are nearly always required. Filing a Chapter Eleven reorganization plan, in particular, requires a high degree of special knowledge and skill. The attorney also can represent you or your business in dealing with creditors, relieving you of that stressful burden. In choosing an attorney, you’ll want to pick one who specializes in the type of bankruptcy that you’ll be filing, whether it’s a “straight” liquidation, repayment of debt, reorganization, or bankruptcy involving a family farm. Bankruptcy has long-term consequences, so– as with any important business decision– it’s important to make sure you’re protected and informed as well as you possibly can be every step of the way.
