Wiesner & Frackowiak, LC
Filing bankruptcy is fraught with myths and inaccurate information. Like most big, bad scary things, its reputation derives from tidbits of truth and lots of embellishment. But it's not nearly as frightening once you know the facts. With that in mind, here are some misconceptions about bankruptcy.
The Most Common Questions Asked About Bankruptcy
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. 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:
What Bankruptcy Cannot Do?
Bankruptcy cannot, however, cure every financial problem. In bankruptcy, it is usually not possible to:
What Different Types of Bankruptcy Cases Should I Consider?
There are four types of bankruptcy cases provided under the law, but the two used by consumer debtors are:
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 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, Chapter 7 Debtors do not lose any property. But property which is not exempt is sold, with the money distributed to 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.
If you earn above the median income for your state and your debt is primarily consumer as opposed to business debt, then to stay in Chapter 7 you will have to pass a means test that compares your income to expenses as determined by the government.
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 time, usually 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.
You should consider filing a chapter 13 plan if you:
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 come due.
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 and you continue to make payments on any secured debt. 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.
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.
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 not normally wipe out:
Will Bankruptcy Affect My Credit?
There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things much worse.
The fact that you've filed a Chapter 7 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 you may be able to get new credit. Most folks who file bankruptcy are able to obtain a mortgage, at competitive market rates, two to four years after receiving a discharge.
How Do I Select a Bankruptcy Attorney?
As with any area of the law, it is important to carefully select an attorney who will respond to your personal situation. The attorney should not be too busy to meet you individually and to answer questions as necessary.
You should carefully read retainers and other documents the attorney asks you to sign.
In bankruptcy, as in all areas of life, remember that the person advertising the cheapest rate is not necessarily the best.
Call us at 913-642-2240
Call us at 913-642-2240