FACTS CONCERNING BANKRUPTCY:
Your Opportunity for a Fresh Start
Biblical References: One of the earliest recorded descriptions
of the concept underlying bankruptcy may be found in Deuteronomy
15:1-2:
At the end of every seven years, thou shalt make a release. And
this is the manner of the release: Every creditor that lendeth
ought unto his neighbor shall release it: he shall not exact it
of his neighbor, or of his brother, because it is the Lord's release.
Modern bankruptcy is based on Article 1, Section 8 of the
United States Constitution which gives Congress the exclusive
power "to establish uniform laws on the subject of bankruptcies
throughout the United States." Bankruptcy law is designed
to provide a "fresh start" for debtors through either
liquidation or reorganization.
The Automatic Stay of Execution:
One of the most important forms of relief provided by a bankruptcy filing
is the Automatic Stay which goes into effect immediately upon filing, even
without notice to the creditors. The mere filing of a bankruptcy will immediately
stop a foreclosure, attachment, garnishment or eviction proceeding, as well
as almost any non-criminal judicial proceeding.
Bankruptcy law gives debtors the power to stop foreclosures or evictions;
restructure secured or unsecured debts; terminate leases and other contracts;
sell lien infested property free and clear of liens; and reprioritize secured
debt and undo prior transactions.
Uniformity: There is some variation from state to state because the Bankruptcy
Code adopts state law for certain purposes, such as exemptions,
but basic bankruptcy law is the same nationwide.
FORMS OF BANKRUPTCY:
Chapter 7 is a liquidation proceeding in which a Trustee sells
all the debtor's non-exempt assets and distributes the available funds
to the creditors. In the majority of consumer cases, the available exemptions
protect all household goods and ordinary personal property. In such "no
asset" cases, the debtor loses nothing and receives a full discharge
of debts. Secured debts, such as a mortgage or car loan, are treated somewhat
differently and must continue to be paid on a current basis to avoid losing
the property.
Chapter 13 is often called the "wage earners" plan.
Most commonly used to cure the arrears on a mortgage, it is available
only to individuals with a regular source of income, with unsecured
debts less than $336,900 (for 2008) and secured debts less than
$1,010,650 (for 2008).* The debtor must show sufficient regular income
over and above basic living expenses to make the plan payments. A Chapter
13 plan can discharge debts otherwise not dischargeable in Chapter 7.
Chapter 11 is a reorganization proceeding used mostly by businesses
but it is also available to individuals.
Your Responsibilities as a Bankruptcy Debtor:
- individuals must first take a credit counselling course
- accurately list all of your debts and assets
- attend the First Meeting of Creditors and answer questions under oath
- cooperate with the trustee in the sale of any nonexempt assets
- provide information and documentation requested by the trustee
- maintain payments on any secured debts, such as a house or car loan,
during and following bankruptcy (unless you are prepared to give up
the property)
- file all tax returns required to be filed (even if you can not pay
the taxes due)
- individuals must take a post petition financial management course
to get a discharge of their debts
The First Meeting of Creditors is held approximately a month from the
date of filing. This hearing is conducted by a trustee in an informal
setting (not a courtroom), but you must appear and answer questions under
oath.
ANSWERS TO COMMONLY ASKED QUESTIONS:
- Will my filing for bankruptcy affect my spouse/co-debtor?
Answer: It will not affect the credit rating of a co-debtor or
a spouse, however, only the bankruptcy debtor will be relieved of liability
on discharged debts.
- Will bankruptcy discharge all my debts?
Answer: Bankruptcy will normally not discharge debts for taxes,
fines, child support, alimony, or student loans. There are other exceptions
as well, but most credit card debts, medical bills, and similar debts
will be fully discharged.
- Can I keep one credit card?
Answer: You must list ALL debts that you have when you file.
You can always reaffirm any debt or voluntarily repay one or more debts
after filing your case to keep a credit card.
- Will I ever be able to qualify for a loan after bankruptcy?
Answer: The most important factors in extending credit are your
current income and expenses (ability to repay the loan). If you can
show that your bankruptcy was due to factors not likely to recur (such
as illness, unemployment, divorce) AND if you have a good steady job,
your chances of being approved for new credit are good.
- How long will bankruptcy affect my credit?
Answer: The fact of filing for bankruptcy can appear on your
credit report for as long as 10 years. This does not mean that you can
not get credit for 10 years. In fact, your credit may actually improve
since your debts will be discharged.
- How can I re-establish my credit after bankruptcy?
Answer: If you have a debt that survives bankruptcy, such as
a mortgage or car loan, making your payments on time will help to re-establish
your credit.
- What is a "Secured Credit Card"?
Answer: You deposit money in a savings account with a bank or
other institution. The amount on deposit is your credit limit on the
card. You still have to make monthly payments on the card. If you fail
to do so, the bank will take the money on deposit.
- What about companies that claim to be able to erase a bankruptcy
from my credit report?
Answer: Don't waste your time or money. The most that they can
do is to temporarily remove adverse remarks on your credit history by
filing a dispute. There is no legitimate way to do what they claim.
Bankruptcy Can Provide Relief from:
- foreclosures and evictions
- harassing phone calls and letters from creditors at home and at work
- lawsuits
- wage gamishments
- IRS collection activities
- attachments on bank accounts or other assets
Bankruptcy May Help You To:
- reduce or eliminate your debt
- keep ALL of your property
- save your home from FORECLOSURE
- pay back some or all of your debt over time
- get extra time to pay up your mortgage
- work out a pay back arrangement with the IRS
- consolidate your bills into a single payment
- reduce the amount you owe creditors
The need for bankruptcy arises for a variety of reasons: temporary or long-term
unemployment, divorce, disability or illness are common reasons. Bad investments
or improvident spending habits may also be the cause. You do not have to
justify your situation or otherwise "qualify" to be eligible for
bankruptcy.
Mr. Pearlstein's Office can help you determine if bankruptcy is a good
option for you, and if so, which type of bankruptcy is most appropriate.
This is a general practice law firm concentrating in bankruptcy, real
estate, and estate work.
Bankruptcy is a specialized area of law but the concerns of bankruptcy
clients often overlap with other areas such as real estate, tax, and even
domestic relations. Being general practitioners in addition to having
a practice concentrated on bankruptcy matters, we are able to answer a
wide variety of questions about how bankruptcy will affect you.
*The amounts of debt are indexed every year.
