What is a bankruptcy?
Bankruptcy is a federal procedure where a Debtor requests the court to provide relief from debt. The idea of affording citizens this right arises from the U.S. Constitution. However, bankruptcy law, as we know it, was first enacted in 1898. There have been many changes since then. A good bankruptcy attorney must be aware of all the current modifications of the law, and in particular, the sweeping 2005 changes.
What is Chapter 7?
Chapter 7 is the most common type of bankruptcy. The Debtor files a Federal Petition with the expectation of obtaining a Chapter 7 discharge within 3-4 months after filing. People choose Chapter 7 to eliminate credit card debt, medical bills, and lawsuits. New rules are forcing debtors with more than $42,000 yearly income to file Chapter 13.
What is a Chapter 13?
Chapter 13 is a court-ordered repayment plan. It is very common when a homeowner falls behind in a mortgage and needs more time to pay back the defaults. Typically, a debtor gets up to 5 years to cure a default. In one case handled by the Bankruptcy Law Center, we helped a debtor obtain more than 13 years to cure the mortgage arrears. Other reasons to file a Chapter 13 are to stop the court from selling a home if there is too much equity or to block student loan IRS collections. The decision whether to file a Chapter 7 or a Chapter 13 bankruptcy is a complex question and should not be attempted without counsel. The lawyer's job is to help you get the best results in light of your budget and debts. Our firm has a 99% rate of Chapter 13 plans approved by the bankruptcy court — one of the best in the state.
Must you pay your IRS taxes in bankruptcy?
Not always. If a tax debt is 3-4 years old and the debtor filed his tax return, the debt may be discharged in the bankruptcy. However, this is a complex question where timing is very important. A debtor who files a bankruptcy just one day too early, in ignorance, can lose the right to get rid of his or her taxes. Many clients of the Bankruptcy Law Center have escaped their tax debt-in one instance over a million dollars of taxes.
Will I lose my home in bankruptcy?
No client of the Bankruptcy Law Center in over 30 years has ever lost his or her home in Chapter 7. However, in these days of rising real estate values, Debtors often have more equity in their house than they think. Choosing Chapter 7 versus Chapter 13 can spell trouble unless a professional carefully examines the equity issue. In some instances, clients who do not make their mortgage payments after filing bankruptcy do lose their home but that is a function of lack of income. Saving a home is top priority for us.
Will I be sued if I file bankruptcy?
Bankruptcy stops most lawsuits except those filed by governmental authorities. For example, it does not stop the Justice Department from filing criminal charges. When a debtor loads his credit cards with debt just before filing, or hides a valuable asset such as an inheritance, or defrauds a friend, or lies in the bankruptcy process, he or she can be sued. When the Bankruptcy Law Center has represented creditors, we do pursue all these kinds of actions to force the debtor to pay. When we represent the debtor we defend these kinds of suits. Truthfulness is very important in all kinds of bankruptcy filings.
Does a Creditor need to file a Proof of Claim?
If there are assets in a bankruptcy case, the creditor should file a proof of claim. This form is attached to the notice the creditor receives from the court that a bankruptcy has been filed. If the case is described as "no-asset", then the filing of a proof of claim may be unnecessary. The Bankruptcy Law Center has helped many creditors collect on proofs of claim in appropriate cases. When the court collects assets, the creditors who are formally listed should receive a notice to file their claims.
What can I keep if I file bankruptcy?
The property that an individual is allowed to keep for himself or herself is scheduled on the Bankruptcy Forms as a "list of exemptions." Persons who own houses can exempt $50,000.00 to $125,000.00 in value in their homes over and above the loans. Others without houses frequently exempt up to $17,000.00 in miscellaneous assets such as bank accounts, cars, and computers. The Bankruptcy Law Center has both attacked and defended exemption claims for clients.
How long does a bankruptcy stay on my credit report?
10 years. However, most of the clients of the Bankruptcy Law Center have begun to rebuild their credit within two years or less.
How soon does a bankruptcy take effect?
The protections of Bankruptcy Law stop creditor action immediately upon the filing of a petition. In one case within less than two hours after the first meeting, an emergency bankruptcy was filed to stop a foreclosure sale scheduled later that afternoon. Special precautions need to be taken in such instances or a client can still lose a home to a bona fide purchaser.
Under what circumstances should a person avoid bankruptcy?
Because bankruptcy is a serious negative item on a person's credit file, it should not be filed unnecessarily. All options should be explored such as negotiating with particular creditors, defending a lawsuit in state court, challenging unfair debt collection. The Bankruptcy Law Center is prepared to file a petition or select one of these other options for a client.
What questions will I be asked in court?
The trustee in bankruptcy (the court officer reviewing your case and collecting assets) usually asks standard questions: Did you read the bankruptcy papers and understand them? Have you owned a home or real estate in the last five years? Have you ever owned a business? Have you had a relative die recently leaving you money? And, do you have the right to sue anyone? There are many additional disclosure requirements under the new law.
Will bankruptcy stain my reputation?
The attitude toward bankruptcy has changed dramatically since the days of debtor prisons. In English courts, bankrupts had to enter through a back door. Today, millions of Americans have used the help of this federal law. Afterward, they find apartments, receive credit cards, get car loans, buy homes, and indeed, live normal lives. Even famous American citizens such as Mark Twain, Henry Ford, and Debbie Reynolds have chosen to file for bankruptcy in their lives.
What are the budget requirements?
The new law imposes tough and complex guidelines — is your income above or below the median for your community? If above, can you pass a "means" test, using IRS budget guidelines? We help debtors analyze and pass these requirements.