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. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you.
WHAT CAN BANKRUPTCY DO FOR ME?
Bankruptcy may make it possible for you to:
- 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.
- Stop foreclosure on your 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.)
- Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
- Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
- Restore or prevent termination of utility service.
WHAT BANKRUPTCY CANNOT DO:
Bankruptcy cannot cure every financial problem, nor, is it the right answer for every individual. In bankruptcy I it is usually not possible to:
- 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.
- Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, some student loans, court restitution orders, criminal fines and some taxes.
- Protect co-signers on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the co-signer may still have to repay all or part of the loan.
- Discharge debts that arise after bankruptcy has been filed.
WHAT DIFFERENT TYPES OF BANKRUPTCY CASES SHOULD I CONSIDER?
There are four types of bankruptcy cases provided under the law:
- Chapter 7, sometimes referred to as "straight" bankruptcy, or "Iiquidation." 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 generally used by businesses.
- Chapter 12 is reserved for family farmers
- Chapter 13, or "debt adjustment", requires a debtor to file a plan to pay debts (or a portion of debts) over a period of time, generally 3 to 5 years.
Most people filing for bankruptcy will want to file under either Chapter 7 or 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. The basic idea of 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 the 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.
CHAPTER 13 (REORGANIZATION)
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 monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.
You should consider filing a Chapter 13 plan if you:
- own you home and are in danger of losing it because of money problems;
- are behind on debt payments, but can catch up if given some time
- have valuable property which is not exempt, but you can afford to pay creditors from your income over time.
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 become due.
WHAT DOES IT COST TO FILE FOR BANKRUPTCY?
If you could afford to pay a lot of money, you wouldn’t have to be filing for bankruptcy. Our office understands this obvious dilemma and accordingly, we are very
competitive in our rates so as to make bankruptcy affordable for everyone. It now costs $274.00-$299.00 in court filing fees to file for bankruptcy, whether for one person or a married couple. Law Office of Peter R. Kaplan currently charges a flat rate legal fee for Chapter 7, of $1,200.00-$1,500.00.
Additional costs for credit conseling and debtor education total approximately
$68.00. To make this affordable for everyone, we offer flexible payment plans whenever necessary, discount rate for seniors and disabled persons of a fixed income. Our office also supplies clients with a free online credit report , (a $50.00 value) , which helps to assure an effective discharge of all creditors.
WHAT PROPERTY CAN I KEEP?
In a chapter 7 case, you can keep all property which the law says is "exempt" from the claims of creditors. The “exemption limits” are fairly generous and allow for most all basic necessities as well as some luxury items. In determining whether property is exempt, your attorney will consider the value of the property. The "value" of the property for this purpose 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.
Your attorney will also ask you about the equity in any real 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 $300,000 house with a $200,000 mortgage, you count your exemptions against the $100,000 which is your approximate “equity,” or amount you would receive if you were to 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?
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 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. There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth.
SPECIAL NOTE: Massachusetts has a generous Homestead Exemption that can protect up to $500,000.00 in your home’s equity. The Massachusetts Homestead Statute affords valuable protection to all homeowners, regardless of their financial situation. However, to claim this protection, the homeowner must file a “Declaration of Homestead” with the Registry of Deeds in the county that they reside. For more information about this important protection, I recommend you visit the Essex County Registry of Deeds at http://www.salemdeeds.com. Click on “HOMESTEAD FAQ'S AND FORMS ”
CAN I OWN ANYTHING AFTER BANKRUPTCY?
YES! Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. 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?
Yes, with some exceptions. Bankruptcy will normally NOT wipe out:
- money owed for child support or alimony, fines, and
- debts not listed on your bankruptcy petition
- loans you got by knowingly giving false information to a creditor who reasonably relied on it in making you the loan;
- debts resulting from "willful and malicious" harm;
- Student loans owed to a school or government body,
- mortgages and other liens “secured debts”
WILL I HAVE TO GO TO COURT?
In most. bankruptcy cases, you only have to go to a proceeding called the "meeting of creditors" to meet with the bankruptcy Trustee and any creditor who chooses to come. Most of the time, no creditors will be in attendance and the meeting will be a short and simple procedure wherein you are asked a few questions about your bankruptcy forms and your financial situation.
Occasionally, if complications arise, or if you chose to dispute a debt, you may have to appear before a judge at a court hearing.
WILL BANKRUPTCY RUIN MY CREDIT?
There is no clear answer to this question. If you are considering Bankruptcy, you are no doubt, behind on your bills and it is likely that your credit may already be bad. Bankruptcy will probably not make things any worse, and may in fact, improve your credit! 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 therefore you may be in a better position to get new credit. If you are diligent, it is possible to rebuild credit to a point where you may be in very good financial shape, within a year or two following bankruptcy discharge.
Many of my clients report to me a couple of years after their discharge, telling me that their good credit has been restored, they are often qualifying for home mortgages, car loans, credit cards, etc.
CAN I FILE BANKRUPTCY ON MY UTILITY SERVICES?
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.
WHAT IF SOMEONE ELSE HAS CO-SIGNED MY DEBT?
Co-signers - If someone has co-signed a loan with you and you file for bankruptcy I the co-signer may have to pay your debt.
CAN I FILE BANKRUPTCY WITHOUT AN ATTORNEY?
Although it is possible 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.
NOTICE: The law often changes. Each case is different. This article is meant to give you general information and not to give you specific legal advice.
