03-Apr-2009

Eight Simple Answers to Common Bankruptcy Questions
by Louis G. Parker

In these uncertain economic times, the topic of bankruptcy seems to be on many people’s minds. If you are behind on your car payment, horribly upside-down in a home loan, struggling to make monthly utility payments, drowning in credit debt or are being constantly harassed by debt collectors, you may want to consider bankruptcy as an option to end these financial stresses.

As an attorney, I find that I am often asked the same types of questions from the people I meet: “Should I file a bankruptcy? Will it help me? Will they take all my stuff?” Below are some of the most commonly asked questions and answers:

1) What Is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who can not pay his or her debts can get a fresh financial start. 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.

2) 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.  (However, bankruptcy does not 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.
  • Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

3) What Bankruptcy Can Not Do

Bankruptcy can not, however, cure 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. 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 on the debt if you decide to give back the property, but you can not keep secured property 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, most student loans, court restitution orders, criminal fines, and most taxes.
  • Protect cosigners on your debts.  When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
  • Discharge debts that arise after bankruptcy has been filed.

4) Will Bankruptcy Wipe Out All My Debts?

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

  • Money owed for child support or alimony;
  • Most fines and penalties owed to government agencies;
  • Most taxes and debts incurred to pay taxes which can not be discharged;
  • Student loans, unless you can prove to the court that repaying them will be an “undue hardship”;
  • 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;
  • Debts incurred by driving while intoxicated;
  • Mortgages and other liens which are not paid in the bankruptcy case (however, bankruptcy can eliminate your obligation to pay any additional money if the property is sold by the creditor).

5) 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, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Creditors rarely attend this meeting.

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 notice of the court date and time from the court and/or from your attorney.

6) Will Bankruptcy Affect My Credit?

The fact that you’ve filed a bankruptcy can appear on your credit record for ten years from the date your case was filed.  But because 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.

If you decide to file bankruptcy, remember that debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not owe anything on the debt.  Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult or costly to get credit.  You should check your credit report 3 to 6 months after your bankruptcy discharge and file a dispute with credit reporting agencies if this information is not correct.

7) Should I use a Document Preparer?

This is not recommended. Document preparation services (also known as “typing services” or “paralegal services”) involve non-lawyers who offer to prepare bankruptcy forms for a fee.  Problems with these services often arise because non-lawyers can not offer advice on difficult bankruptcy cases and they offer no services once a bankruptcy case has begun.  There are also many untrustworthy operators in this field, who give bad advice and defraud consumers.

8) How Do I Find a Bankruptcy Attorney?

In bankruptcy, as in all areas of life, remember that the person advertising the cheapest rate is not necessarily the best.  Many of the best bankruptcy lawyers do not advertise at all. When first meeting a bankruptcy attorney, you should be prepared to answer the following questions:

  • What types of debt are causing you the most trouble?
  • What are your significant assets?
  • How did your debts arise and are they secured?
  • Is any action about to occur to foreclose or repossess property, to attach your wages or bank account, or to shut off utility service?
  • What are your goals in filing the case?

The Bankruptcy Department at Davis Miles PLLC offers free bankruptcy consultations. During the consultation, we will discuss the questions outlined above as well as your options, bankruptcy related or otherwise. You can schedule a consultation by calling (480)733-6800.