David Weston, Attorney At Law FAQs

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, at least until your debts are sorted out according to the law.

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 house or manufactured home. This allows you to catch up on missed payments. Bankruptcy does not automatically eliminate mortgages and other liens on your property without payment.
• Prevent repossession of a car or other property.
• Stop debt collection harassment. It also stops wage garnishment and similar creditor actions to collect a debt.
• Challenge the claims of fraudulent creditors. It is illegal to attempt to collect more than you really owe.

Bankruptcy is not a cure for every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:

• Eliminate certain rights of ‘secured' creditors. A creditor is secured if it has taken a mortgage or other lien on property as collateral for a loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process. Bankruptcy can eliminate your obligation to pay any additional money on the debt if you do decide to give back the property. But you generally cannot keep secured property unless you continue to pay the debt.
• Discharge types of debts singled out by the bankruptcy law for special treatment. Child support, alimony, most student loans, court restitution orders, and criminal fines fall in this category.
• Discharge debts that arise after bankruptcy has been filed or were not originally listed in the bankruptcy petition.

There are four types of bankruptcy case options provided under the law:

• Chapter 13 is a type of reorganization used by individuals to pay all or a portion of their debts over a period of years using their current income.
• Chapter 7 is known as ‘straight bankruptcy' or liquidation. It requires an individual to give up property which is not exempt under the law so the property can be sold to pay creditors.
• Chapter 11 or ‘reorganization' is used by businesses and a few individuals whose debts are very large.
• Chapter 12 is reserved for family farmers and fishermen.

The most common types of bankruptcy cases are Chapter 7 or Chapter 13. Either type may be filed by an individual or jointly by a married couple.

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 Chapter 13 cases is that it will allow you to keep valuable property that may otherwise be lost, like your home and car and also reduce or eliminate other unsecured debt such as credit card, medical bills, and signature loans.

You should consider Chapter 13 if you:

• Own your home/automobile and are in danger of losing your property because of money problems.
• You are behind on debt payments, but you 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.
• Are either having your paycheck garnished or a creditor is threatening to garnish.

You will need to have enough income during your Chapter 13 case to pay for your necessities and to keep up with the required payments as they come due.

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 in Chapter 7 is to wipe out (discharge) your debts in exchange for giving up your property, except for the ‘exempt' property which the law allows you to keep. In most cases, all of your property will be exempt. But the property which is not exempt is sold and the money distributed to the creditors.

If you want to keep the property, like a home or car, and are behind on the mortgage or car loan payments, a chapter 7 case probably won't 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.

For example, all other states fall in between. Higher income consumers who are above the state median must fill out the ‘means test' form. It requires detailed information about their income and expenses. If the bankruptcy median income form shows that debtors have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they cannot file a Chapter 7 case unless there are extenuating circumstances.

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 be 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 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 your home or the other property during the bankruptcy case if the creditor gets the permission from the court or after the case is closed.

In a Chapter 13 case, you may be able to keep certain secured property by paying the creditor the value of the property rather than the full amount owed on the debt. Or you can use Chapter 13 to catch up on back payments and get current on the loan.

There are also several ways that you can keep collateral or mortgaged property after you file a Chapter 7 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. In some cases, involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan, you can usually keep your property without making more payments on that debt. Generally, all of these ways to keep secured property require that you and your attorney take some action during the bankruptcy case.

Yes, with some exceptions. Bankruptcy will not normally wipe out the following:

• Money owed for child support or alimony
• Most fines and penalties owed to government agencies
• Most taxes and debts incurred to pay taxes which cannot be discharged, however, most taxes can be paid through a Chapter 13
• Student loans
• Debts not listed on your bankruptcy petition
• Loans you got by knowingly giving false information to a creditor, who reasonably relied on it to make a decision to give you the loan
• Debts resulting from willful and malicious harm
• Debts incurred by driving while intoxicated
• Mortgages and other liens which are not paid in the bankruptcy case. Bankruptcy will wipe out your obligations to pay any additional money if the property is sold by the creditor

In most bankruptcy cases, you only have to go to a proceeding called the ‘meeting of creditors' with your attorney to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.

Occasionally, if complications arise or if you choose to dispute a debt, you may have to appear at a hearing. In a Chapter 13 case, you may also have to appear at a hearing when the judge decides whether your plan should be approved. If you need to go to court, you will receive ample notice of the court date from the court and your attorney.