What is bankruptcy?
It is a legal proceeding in which a person seeks protection from his creditors. A bankruptcy suit is filed in federal court. The person who files bankruptcy is known as the debtor.
Should I file bankruptcy?
That depends on how much you owe, how much you make, what your assets are and many other factors. It’s important to discuss this with your attorney.
What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
Chapter 7 is a liquidation. Your nonexempt assets (if any) are distributed to the creditors according to certain rules. A Chapter 13 bankruptcy is a repayment plan. You must make a monthly payment to a trustee appointed by the court. The trustee then distributes these payments to your creditors.
Which chapter should I file?
There are certain rules that govern your decision. For instance, if you received a discharge in a Chapter 7 case, you may not file another case for eight years. However, you may still be able to file under Chapter 13. You should discuss with your attorney the advantages of filing under each chapter.
What is a discharge?
When the court grants you a discharge, it means your obligation to repay your creditors is gone. In a Chapter 7, you also must complete a financial management course by telephone or computer. Additionally, in a Chapter 13, you must have made all your monthly payments to the court.
Are all my debts discharged in bankruptcy?
Certain debts are not discharged. Tax debts, student loans and domestic support obligations are the most common exceptions. These debts survive the bankruptcy.
How much does it cost to file bankruptcy?
This, by far, is the most often asked question. This is understandable, because if someone is at the point of considering filing a bankruptcy petition, the cost of doing so is usually an important factor. Before getting into specifics on fees and costs, I will tell you that my fees are extremely competitive. If you “shop around”, you will find that my fees are in line with most attorneys who handle bankruptcy matters regularly. There are also the costs to file your case: currently it is $335 for a Chapter 7; $310 for a Chapter 13. There are the costs for credit counseling and debtor education, approximately $50. There is the cost of obtaining (with your permission) a download of your credit reports that helps your attorney do his job. The fee I quote you includes all the above costs. Some attorneys artificially make their fees appear to be a bargain by not including the costs that you will have to pay in addition to their fee.
Do I lose everything when I file bankruptcy?
The Bankruptcy Code provides that a debtor filing for bankruptcy can keep certain assets for a “fresh start” by exempting property from the estate. The vast majority of bankruptcy cases are “no asset” cases, meaning that there are no nonexempt assets which the trustee is going to administer in order to pay creditors. You can keep your clothes, household furniture, pets and musical instruments. A car or truck up to $7,500 of equity is exempt. A home is also exempt up to $35,000 of equity. Other things that you own are not strictly exempt and may not be worth the trustee’s trouble to sell. Of course, by the time you file your bankruptcy petition, you and your attorney will have thoroughly reviewed your situation in order to determine if there are any assets at risk.
Will I be allowed to file bankruptcy if my income is high?
As discussed elsewhere in this site, in order to determine whether or not you are eligible to file under Chapter 7, a “means test” is utilized. If your income is above the state median level for a household size the same as yours in the parish in which you reside, analysis of your expenses is necessary. Some of these expenses are not your actual expenses, but rather are national and regional standards, and some are your actual expenses. If, after deduction of these expenses, your “disposable income” is less than a certain amount, then you are permitted to file a Chapter 7 without involving a presumption of abuse. If your income is over that amount, then you will be forced into a Chapter 13 proceeding.
Must I list all my creditors in a bankruptcy?
You must list all your creditors, even though you may not want to. Clients often tell me that for some reason they do not wish to list a creditor. Sometimes they indicate that they are current with their payments with a creditor, maybe a home mortgagee or a car lender, and do not wish to disturb their good relationship with the creditor. I have to advise them that the Bankruptcy Code requires that all debts be listed. This does not necessarily mean that the relationship with the creditor will be damaged. If the creditor has a security interest in some property, such as your home or vehicle, usually the creditor and debtor enter into a “reaffirmation agreement.” This is a special document which is also signed by your attorney and is filed with the court. The effect of the reaffirmation agreement is to again make the debtor legally responsible for the debt. The creditor usually is very happy to enter into this agreement. After all, the creditor would much rather have you pay the debt than to go to the expense and hassle of seizing and selling the collateral, usually at a loss. If the debt is an “unsecured” debt, meaning that there has been no property pledged to “secure” the debt, it almost always is not advisable to reaffirm the debt. The reason for this is that there is no benefit such as retention by the debtor of secured property to justify the reaffirmation of the debt. To reaffirm the debt, and consequently to be obligated to repay it, prevents a true “fresh start”, which, after all, is the purpose of filing a Chapter 7 bankruptcy. Having said that, however, the Bankruptcy Code allows you to pay any debt on a voluntary basis, if you wish to do so. Whether this is advisable is questionable and is an issue to be discussed with your attorney.
Can I keep my car?
Yes, most probably. There are two questions which must be addressed.
Will the trustee take the car? The first consideration is to determine whether the trustee will administer the vehicle (take it and sell it to pay creditors). If there is little or no equity in the car, after subtracting any car loan from the car’s present value, the bankruptcy trustee will not take the car. If there is equity in the car over and above the value of the exemptions available, a debtor can usually buy any unprotected equity from the Chapter 7 trustee, if necessary. Your vehicle is exempt up to $7,500 in equity value (the value remaining after subtracting the amount of any loan against it from the NADA retail value). Additionally, if the vehicle has been modified to accommodate a physically infirm person, then there is a $7,500 exemption available.
Will the creditor take the car? If you still owe money on the car, you can choose to reaffirm the debt to the secured lender, keep the car, and continue paying under the existing terms; or you can buy the car from the secured creditor for its present value (redemption), usually in a single payment. Your creditor will be quite willing for you to reaffirm the debt. In a Chapter 7, the creditor usually requires you to be current with your payments at the time the reaffirmation agreement is signed. Of course, if you choose, you can surrender the car and be free of any obligation to pay for it.
Will bankruptcy stop wage garnishments?
Yes. As soon as your case is filed, creditors must stop whatever collection efforts are underway, including garnishment. The only exception may be for ongoing child or family support ordered by a court. The discharge of a debt will forever eliminate a creditor’s right to garnish your wages on account of that debt.
Does my spouse have to file with me?
No, there is no requirement that both spouses file, either under Chapter 7 or Chapter 13. In some situations, it might not be necessary. For example, in Louisiana, which is a community property state, a debt incurred during the existence of a marriage is presumed to be a community debt, and therefore owed by both spouses. (This presumption can be overcome if the debt was not incurred for the benefit of both spouses or the one who had not incurred the debt). Even if only one spouse files a bankruptcy petition, the bankruptcy discharge is effective as to the other spouse with regard to the community debts. Assuming that all debts are community in nature, one might then ask why it would ever be necessary for both spouses to file. Two reasons come to mind. First, the presumption that a debt is community is just that—only a presumption. It can possibly be overcome, and a creditor may attempt to do so. Second, creditors, especially those located out of the state of Louisiana, may be ignorant of this rule, and assume that the discharge does not cover the non-filing spouse, In either event, needless harassment or even litigation may ensue. Since one of the goals of filing bankruptcy is to obtain protection from creditors, it often is advisable for both spouses to file. If only one spouse has debt and it is clear that this debt is separate, not community (for example, if the debt was incurred prior to the marriage), then it is not necessary for both spouses to file.
Will I be able to get credit after I file?
That is up to the individual creditors and how they assess your creditworthiness. If you file a Chapter 7, the creditor knows you cannot file another Chapter 7 for eight years. Once the bankruptcy case is closed, credit usually becomes available to my clients. At first, it may be a credit card with a high interest rate and a low credit limit. Mortgage lenders usually want to see two years of good credit history after a bankruptcy. There is no “right” to credit, and landlords and credit card companies are well within their rights to consider your financial history in their credit decision. However, debtors are protected from discrimination based solely on the fact that they have filed bankruptcy by provisions of the Bankruptcy Code. While the fact that you filed bankruptcy stays on your credit report for up to 10 years, it becomes less significant the further in the past the bankruptcy is. In fact, you may well be a better credit risk after bankruptcy than before.
Can bankruptcy help me save my house from foreclosure?
When you file a bankruptcy, the law imposes an automatic delay on legal proceedings, including foreclosures, but this may be good only for a limited time. To save your house, you must file a Chapter 13, which will propose to repay the money you owe to your mortgage company over the length of your bankruptcy, which is 36 to 60 months. You will also have to make your regular monthly payments during this time. If you make all your payments, you will emerge from bankruptcy current on your mortgage.
What about my taxes and my tax refund?
Generally, while your case is open, your tax refunds can be taken by the trustee and distributed to your creditors. In some cases, the trustee decides it is not worth his trouble, and returns the refund to the debtor.
Do a husband and a wife have to file together?
No. They can file together, they can file separately or just one can file.
How long does bankruptcy take?
A Chapter 13 bankruptcy lasts no less than 36 months and no longer than 60 months.
A Chapter 7 case is usually over in about four months. There can be exceptions.
Can I be fired or denied employment because of a bankruptcy?
No, the Bankruptcy Code prohibits a private employer from discriminating against an employee or prospective employee solely because of a bankruptcy.
Can I be denied a student loan on account of bankruptcy?
No. Again, the Bankruptcy Code strictly prohibits denial of a loan because your or someone with whom you have been associated has filed bankruptcy.
Can a utility (electrical, telephone, etc.) cut off or refuse service because of bankruptcy?
No, however, the utility can require “adequate assurance” for service (usually a deposit.) Please note that this deposit must be paid within 20 days of filing.
Will a bankruptcy discharge get rid of a lien on my home?
No. The discharge relieves you of the legal obligation of paying the debt underlying the lien. But, the lien generally survives. For example, if a creditor has obtained a judgment against you and has recorded the judgment, a judicial lien is created against your real estate. This lien will remain after the bankruptcy discharge. It may be possible to have this lien removed, but it is not automatically removed. You should discuss this with your attorney.
Can I put my property in someone else’s name before filing?
Such transfers are not effective to put your assets beyond the reach of creditors and bankruptcy trustees. Worse, such action may lead to the denial of your discharge. A bankruptcy trustee can recover assets transferred within one year of the bankruptcy filing where the debtor did not get reasonably equivalent value for the asset, or where the transfer was made with intent to hinder creditors. This “look back” period may be even longer in some situations. If you have more assets than you can protect with the available exemptions, consider filing Chapter 13 where the debtor generally keeps all of his or her property and, in essence, “buys back” the non exempt value from the creditors through payments to the Chapter 13 trustee out of future income .
I have always paid my bills. Is bankruptcy the moral thing for me to do?
Most of my clients are reluctant to file bankruptcy. But overwhelming debt can crush a person. The bankruptcy laws were created to give a person a fresh start. The Founding Fathers felt so strongly about this that in the Constitution they authorized Congress to enact uniform laws on bankruptcy throughout the United States.
What if I can’t make the payments on my Chapter 13 plan?
Chapter 13 plans are voluntary and you can dismiss them freely. Also, if you have a temporary interruption in income or an unexpected increase in your expenses, you can ask the court to modify your plan to reduce the payments, or to obtain a suspension of the payments for a couple of months. If you miss the payments and don’t take action to modify your plan or to get a suspension, the court will dismiss your case. Even if this happens, however, you can refile, usually right away. (In some situations, you may have to wait 180 days before filing).You also have the right to convert your Chapter 13 case to Chapter 7.
Does a previous bankruptcy prevent me from filing again?
It depends on what chapter you want to file now, what chapter you filed before and whether you received a discharge in the earlier case You can only get a Chapter 7 discharge if a previous Chapter 7 case was filed more than 8 years ago. If you got a Chapter 13 discharge within 8 years, the Chapter 13 plan has to have met certain repayment requirements to permit a Chapter 7 case within 8 years. If your previous case was dismissed before discharge, this does not count in these considerations. You can file a Chapter 13 case after a Chapter 7 without any statutory time restrictions. The court, however, can question the debtor’s good faith, a necessary element to confirm a Chapter 13 plan, if he or she has recently filed Chapter 7 and received a discharge. You can freely convert a pending case from one chapter to another. Generally, you can only convert a Chapter 7 to Chapter 13 before the discharge is entered.
Do I need an Attorney at all?
You may be tempted to attempt to prepare and file the bankruptcy documents yourself. After all, you can buy the forms and fill the blanks in yourself. That way, you avoid the attorney’s fee (you still have to pay the court costs). Or, there are some “bankruptcy preparers” who charge a minimal fee to prepare and file the necessary paperwork to file a bankruptcy. While in some cases this may not be a major problem, it has been my personal experience that the risk is simply not worth it. Much of what goes into the bankruptcy petition, schedules and statements comes from insightful and probing questioning from a qualified bankruptcy attorney. Bankruptcy preparers are strictly prohibited from practicing law and, therefore, cannot give legal advice or even ask the necessary questions to make sure you are completing your paperwork fully and completely. Even if they were legally allowed to do so, they are not able to adequately assess the laws surrounding exemptions and to determine what your best options are. In preparing the documents yourself, with or without the assistance of a bankruptcy preparer, you may assume, for example, that there is no problem with not listing a particular asset or debt, or reaffirming a particular debt, only to find out months or even years later that you did not get rid of that debt, or that you may lose an asset, or any number of other problems. Perhaps most importantly, without an attorney, you will not have representation in court if the need should arise (and it often does when paralegals handle things). Further, if you list things incorrectly in your petition, schedules or statements, or omit necessary items, it is YOUR problem, not the paralegal’s problem. You sign all your bankruptcy papers under penalty of perjury. Ultimately, the debtor may have to spend several thousand dollars to attempt to remedy a situation that could have been prevented, or at least planned for, at the beginning. Bankruptcy is a very important decision. It is basically the first step towards your entire financial future. The entire bankruptcy system is designed so that attorneys represent all parties involved. That is what we are trained to do. Do you want to trust this future to yourself or to a non-licensed non professional? This is the time that you should do things correctly. Don’t skimp and save at this point. Hire the most competent attorney that you can afford and take the first step towards your fresh start.
Nothing contained herein should be construed to constitute advice for your personal situation. Furthermore, this is intended as a peripheral glance at the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws. Whether or not you should file a Chapter 7 or Chapter 13 bankruptcy, or seek any other type of relief, will vary depending on your personal situation. This decision should only be made after careful consideration and analysis, and after consultation with a professional. The information regarding bankruptcy law you see here may contain information and rules peculiar to the Eastern District of Louisiana. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.