General Questions About Bankruptcy
If you are considering filing for bankruptcy, or have a friend or relative who is, you probably have questions. We’ve grouped together some common questions we receive from our clients as their bankruptcy claims are processed. Keep in mind that every case is different. But the answers we’ve provided can be used as guidelines and will give you a general idea of what to expect.
Exactly what is bankruptcy?
Bankruptcy is a legal proceeding provided by federal law that allows those who are unable to pay their bills to obtain a fresh start. Included in the U.S. Bankruptcy Code are two options for individuals in financial trouble. Chapter 7, also called straight bankruptcy, and Chapter 13, the Wage Earner Plan, are ways you can regain financial stability.
What does bankruptcy accomplish?
1. It stops wage garnishment and collection harassment.
2. Cancels out most debts.
3. Stops repossession of property.
4. Stops mortgage foreclosure.
Is a court appearance required?
You have to go to a meeting called the “meeting of creditors” to meet with the bankruptcy trustee and any of your creditors who choose to come. Most of the time, the meeting is simple and short. You will be asked a few questions about your case. In most cases creditors do not attend the meeting.
Is it mostly people who “live high” who are involved in personal bankruptcies?
Not at all. Occasionally a celebrity such as a movie star gets publicity for filing bankruptcy, but this is not typical. Usually it is an ordinary working person who has lost his or her job, gone through a divorce, is temporarily disabled or has unexpected high medical bills. These circumstances make it difficult for the person to pay off all of his or her creditors.
Are there more personal bankruptcies than business bankruptcies?
Yes. About 90 percent of bankruptcies filed are personal.
Are bankruptcies usually filed for large amounts of money?
No. Usually one creditor is putting the pressure on and demanding all payments at once, including those that are in arrears. The trouble is that all of the debtor’s other creditors also want payment, and there just isn’t enough money to go around.
Does easy credit contribute to a large number of personal bankruptcies?
Yes. Creditors make it so easy to get credit that we find a number of people become overextended. Often they don’t realize how deeply in debt they are, because they keep paying their bills with new loans. Once a person’s credit runs out, it’s too late. Creditors begin to call and harass them for delinquent payments.
When is my bankruptcy filing effective?
The moment the court receives the completed petition. When your petition is filed, all suits, wage attachments and other collection activities against you must be stopped. Once you have filed bankruptcy, your attorney will discuss which bills you must pay and the ones you are legally entitled to stop paying.
If I file bankruptcy, will my credit rating be ruined for seven years?
Creditors will often say this to discourage you from filing bankruptcy. There is no federal or state law that prevents you from buying on credit after bankruptcy. Keep in mind that if you are 60 to 90 days behind on your bills, have been sued or had your wages attached, had a repossession, a home foreclosed on or have debts in a collection agency, you probably cannot buy on credit now. According to the Fair Credit Reporting Act, Chapter 7 and Chapter 13 will go on your credit record, and may remain there for 10 years. However, the large local credit reporting firms remove Chapter 7 after nine years and nine months, and Chapter 13 after six years and nine months.
Will the court take any of my property?
In most cases, you are able to keep your home and car, and much of your personal property, including savings, furniture and household goods.
What Happens If I Return Items I Purchased On Credit?
Then you will no longer owe any money. This means you have the choice of continuing to pay for goods and keeping them, or returning them and no longer owing the debt.
Does filing bankruptcy get your creditors “off your back?”
Yes. When your attorney files your petition with the bankruptcy court, a court order immediately takes effect. It will prevent your creditors from harassing you for payment at home and on the job and from contacting friends, relatives or your boss. Your creditors cannot repossess your property (without specific court permission) or garnish your wages. Even the state tax authorities and the Internal Revenue Service cannot bother you.
Will filing bankruptcy cause me to lose my job?
That would be most unusual. In most cases your employer won’t even know about it. Usually, when an employer knows an employee is having financial problems, it doesn’t matter if the employee files bankruptcy, as long as he gets his mind back on the job.
Who will notify my creditors that I have filed bankruptcy?
The court or the trustee will notify your creditors.
What makes people decide to file bankruptcy?
When people feel their debt is no longer manageable and they have more debt than they can repay, they may decide to file bankruptcy to regain financial stability and restore peace of mind.
Must I list all my bills on my bankruptcy petition?
Yes, you must list them all. However, you can pay any creditors you choose after you file your petition.
Must I list credit cards or charge accounts I do not owe money on?
Do I need permission from my spouse to file, and will my husband/wife then be responsible for the bills?
If the two of you were jointly liable on a debt, then filing for bankruptcy individually will put shift the burden for that debt to the non-filing spouse. It is usually necessary for both husband and wife to file if they are jointly responsible for many of their bills.
Will I be able to keep such items as clothes, records, books, kitchenware, bedding, linen, and similar items I have bought on credit but will not be paying for because bankruptcy has discharged my debt?
Yes. Only items that have monetary value are of interest to creditors. Because the above items have little or no value, they are of no interest to your creditors. In most cases, these items are also exempt according to Texas State Law.
Can I file if I’m married, divorced, separated, in the middle of a divorce, widowed, unemployed, employed, on welfare or if I am not a citizen?
Yes. Your civil status has no bearing on filing bankruptcy.
Can I buy a home, change jobs, start a business, buy furniture or a car, or move to another city or state after I file bankruptcy?
Yes. Bankruptcy does not bar you from your normal daily activities, your civil liberties or rights.
May I file if I have debts in another city or state?
Will the new bankruptcy law prevent people from filing bankruptcy?
No. For 90 to 95% of our clients, they will still be able to file Chapter 7 and eliminate their debts, or if they want they will be able to file a Chapter 13 Plan and pay a little bit back.The Bankruptcy Abuse Prevention and Consumer Protection Act will be less efficient and more complicated than the prior law, but the majority of the provisions will not impact most people. I think that this new law is much ado about nothing and people are worried for no reason.
Do the changes help the credit card companies?
We are not sure if the credit card companies will benefit. The credit card companies are hoping they will benefit, but only time will tell.
I make $24,000 per year and owe $22,000 in credit card debt. I cannot get caught up and my wages are being garnished. Will bankruptcy help me?
You qualify for a Chapter 7 or a Chapter 13. Either Chapter will help you deal with your creditors.
My wife has a pile of medical bills – will bankruptcy help?
Chapter 7 or Chapter 13 will wipe out medical bills. We would need to review your income and the value of your assets to determine what the best option for your family might be.
I only earn $27,000 per year and I have $31,000 in credit card debt. What can I do?
Your income is under the State of Texas median income. You probably could file either a Chapter 7 or 13. We would need to review the value of your assets and then give you advice.
I heard that if I earn over the Median Income, I may have to file a Chapter 13. Is this correct?
If you earn over the median income, that does not mean that you must automatically file a Chapter 13. For clients who earn over the median income, we must work through a budget with some pre-determined allowances, deduct secured debt payments and some actual expenses and see if we have over $166 per month or whether the surplus allows a 25% dividend to unsecured creditors. The majority of people who are over the median income may still be able to file Chapter 7 if they choose to do so.
What is the median income in Texas?
In Texas, the median income for one person is approximately $33,280, for two people, it is approximately $46,454, three approximately $48,755, four approximately $56,246, and approximately $48,567 for five people.
I heard that I must use current monthly income (CMI) when working up my budget for bankruptcy. What is CMI?
CMI will be based on your income over the past 6 months. We will look to see what the past 6 month’s earnings have been and divide by 6. Your current actual income may be different than the CMI and certain income, such as Social Security is excluded from CMI.
How does Credit Counseling work?
In order to file bankruptcy, you must attend a credit briefing from an agency such as Consumer Credit Counseling. This briefing must take place within 180 days before you file bankruptcy. Then after you file there is a short credit class that you must also attend. We do not have a problem with this part of the law and even if we had a problem with it, the two credit counseling components of the law are a requirement to file and get a discharge.
What changes have been made with respect to the forgiveness of credit card debt?
If you have purchased a luxury item valued at $500 within 90 days of filing, or have taken a cash advance of $750 or more within 70 days of filing, those debts are presumed not to be discharged.
I am behind on my mortgage, what can I do?
You can take all the payments you have missed and file a Chapter 13. Chapter 13 will help clients who have delinquent mortgage payments to keep their homes.
What are the most important things you want consumer to know about this new law?
Most people will not be affected by the changes. The results we will be able to obtain will be the same as what we have been able to attain in the past. In other words, we should be able to eliminate a great deal of debt. Each case we analyze will depend on the facts presented. Clients will also have to attend Credit Counseling classes.