“What are the different chapters?”
They refer to different parts, called chapters, of the bankruptcy law. Individuals may use Chapter 7 or Chapter 13. Chapter 7 gives you a fresh start by discharging your unsecured debts (such as credit cards and medical bills). It is sometimes called liquidation. Businesses may used Chapter 7 to liquidate or Chapter 11 to reorganize their business and repay their debts over a period of years under a “plan.” Business that wish to continue as going concerns must use Chapter 11.
“What are common mistakes that people make in bankruptcy?”
- Waiting until they are too short of cash to afford the attorney’s fees.
- Pulling money out of exempt assets like their house or their 401k in an attempt to get their heads above water, and then having to file anyway. If they had left those assets untouched and filed earlier, they could have kept those assets.
- Continuing to make payments on credit cards, medical bills, or other dischargeable debts after it has become clear that they are going to have to file. They could have held onto those payments and just filed sooner.
- Going to debt counseling services.
- Waiting too long to consult an attorney. Consultations are free, so I really don’t understand this one.
- Taking cash advances of $1,000+ or buying luxury goods or vacations costing over $1,000 shortly before filing.
- Filing before their situation has stabilized and they have found another job. When this happens, they continue to incur debts even after they have filed, but the new debts are not discharged in the bankruptcy.
“What do you think of debt counseling services?”
I think many of them are scams. If you are on the line of being able to claw your way out of debt, they may be useful, but choose with care. If you are so underwater that you are not realistically going to dig your way out, give up and file bankrtupcy before you “throw good money after bad” trying to service credit card debt that is just too overwhelming.
“What can I keep?”
Individuals may keep their “exempt assets.” In Texas you can choose to use the Texas or the federal list of exempt property. Generally speaking, you can keep your house and its furnishings, your car, and your retirement accounts. You can not keep “extras” like a boat, vacation home, a second home that you rent out to tenants, expensive gun collections, etc.
Businesses generally do not have exempt assets.
“How does the process work?”
You file your bankruptcy petition which lists all of your assets, debts, sources of income for the past two years, etc. A trustee will be appointed to examine your case for non-exempt assets which may be seized and distributed among the creditors. About 30 days later, you have your 341 meeting with the trustee. (This meeting is named after a section of the bankruptcy code). At this meeting your creditors can appear to challenge your Petition and tell the trustee about your secret Swiss bank account.
“What if I am behind in my mortgage payments but I want to keep my house?”
You should file a Chapter 13. This will give you several years to catch up on your arrearages.
Under a Chapter 13, a plan for the repayment of debts is created by you and your attorney and, with the approval of your creditors, confirmed by the Court. The process of creating the plan and getting it approved by creditors and confirmed by the court takes about 9 months. Upon successful completion of the plan, the bankruptcy is discharged.
“What about my student loans?”
Student loans are not dischargeable. See here for a list of other types of debts that can not be discharged.
“How soon can I stop my creditors from harassing me?”
As soon as you hire an attorney, you can direct them to call your attorney instead of you. Then upon the filing of your Petition, their collection activites must cease.
“How will bankruptcy affect my credit?”
It will be on your record for 10 years, and obviously it is a negative factor on your credit report. However, some people are actually better credit risks after they file bankruptcy (esp. a Chapter 7) because (i) they have a lot less debt and so they are better able to repay their new debts, and (ii) they can’t file a Chapter 7 again for another 6 years. Two years after you file you are eligible to apply for a mortgage on the same terms as someone who has never filed bankruptcy.
“Will I be able to keep my tax refund?”
Tax refunds are assets of your bankruptcy estate and are not exempt, so probably not. However, under the federal exemptions, if the equity value of your home is low enough, you can exempt up to about $9,000 worth of any property, including cash from a tax refund.
“Can I be fired because of my bankruptcy?”
No, but it’s not hard for an employer to find a reason to fire an employee. Also, employers can deny employment to an applicant based on their credit report. But, generally speaking, firings and refusals to hire because of bankruptcy are rare.
“Can I be denied access to student loans because of my bankruptcy?”
No. But you still must meet all requirements of the student loan program.
“What are the most common reasons for filing bankruptcy?”
Loss of job, business failure, medical bills, and divorce.
“Should I feel guilty about filing for bankruptcy?”
Unless you are abusing the system, you should absolutely not feel guilty about it. The bankruptcy laws are there for a reason. Life is risky, and if you get in over your head, you need to hit the reset button and start over. It’s perfectly normal, and it’s perfectly necessary sometimes. See the question immediately above. These things can happen to anyone.
“Can a collection agency add interest to my debt?”
Yes. The Federal Debt Collection Practices Act allows a collector to add interest if your original agreement calls for the addition of interest during collection proceedings or the addition of such interest is allowed under state law. Every state authorizes the collection of such interest.
“A collection agency sued me and won. What collection measures can it now take against me?”
Before obtaining a court judgment, a bill collector generally has only one way of getting paid: demand payment. This is done with calls and letters. However, once the collector (or creditor) sues you and gets a judgment, the law allows it to take further steps to collect the debt. The collector may try to seize bank or other accounts of yours. If you own real property, the collector may record a lien against it, which will have to be paid when you sell or refinance your property. Even if you’re not currently working or have no property, the judgment won’t disappear. Court judgments last for years, and in many cases can be renewed. If a collection agency files suit against you or wins a judgment against you, contact an attorney immediately. You may need to consider a prompt bankruptcy filing to preserve the rest of your assets.
“Will My Spouse Be Affected?”
Your wife or husband will generally not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they have a supplemental credit card they are probably responsible for that debt. Texas is a community property state, and some people feel that the concept of “community debt” exists in Texas. I think that’s incorrect, but it’s a more complicated issue than I can explain here.
“Who Will Know?”
Bankruptcy filings are public records. However, under normal circumstances, no one will know that you filed.
“Can I Keep Any Credit Cards?”
Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are including the credit card in your bankruptcy, they will cancel the card unless you reaffirm the debt (i.e. choose to pay it). Even if you have a zero balance the credit card company might cancel the card.
“Will I Ever Get Credit Again?”
Yes! A number of banks now offer “secured” credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment. Usually the credit limit is equal to the security deposit and is increased as the debtor proves his or her ability to pay the debt.
Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.
“How Do I Go Into Bankruptcy?”
There are two ways a person can become a bankrupt. The first and more common way is for the person to file a Petition voluntarily. The second, and rarely used way, is for creditors to ask the Court to issue an order that a person is bankrupt. In both these cases, a trustee is appointed to administer the bankruptcy.
“Can I protect my co-signers from my creditors coming after them?”
If you file a Chapter 7, no. If you file a Chapter 13, probably.