Kainen Law Office

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.  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.

What Bankruptcy Cannot Do:

Bankruptcy cannot 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 secured creditor has taken a mortgage or other lien on property as collateral for the loan.  Common examples are car loans and home mortgages.  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 if your property is taken.
  
  Discharge types of debts singled-out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines and some taxes.
  
  Protect co-signers on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the co-signer may still have to repay all or part of the loan.
  

What Different Types of Bankruptcy Cases Should I Consider?

There are generally four types of bankruptcy cases provided under the law:

Chapter 7 is known as "straight" bankruptcy or "liquidation."  It requires a debtor [someone who files bankruptcy] to give up property which exceeds certain limits called "exemptions," so the property can be sold to pay creditors.

Chapter 11 is known as "reorganization," is used by businesses and a few individuals whose debts are very large.

Chapter 12 is reserved for family farmers and fishermen.

Chapter 13 is called "debt adjustment."  It requires a debtor to file a plan to pay debts (or parts of debts) from current income.

Most people filing bankruptcy will want to file under either Chapter 7 or Chapter 13.  Either type of case may be filed individually or by a married couple filing jointly.


What Does It Cost to File for Bankruptcy?

The court filing fee is $299.00 to file for bankruptcy under Chapter 7 and $274.00 to file for bankruptcy under Chapter 13, whether for one person or a married couple.  If you are unable to pay the filing fee in installments, you may request that the court waive the filing fee.  THIS FEE DOES NOT INCLUDE YOUR LEGAL FEES.  WE WILL QUOTE YOU A LEGAL FEE, ONCE WE HAVE ASSESSED YOUR SITUATION.

What Must I Do Before Filing Bankruptcy?

You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed.  The agency will review possible options available to you in credit counseling and assist you in reviewing your budget.  Different agencies provide the counseling in-person, by telephone, or over the Internet. Our fee includes the cost of credit counseling and we will set you up with an approved agency to complete the process.

It is usually a good idea for you to meet with an attorney before you receive the required credit counseling.  Unlike a credit counselor, who cannot give legal advice, an attorney can provide counseling on whether bankruptcy is the best option.  If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. 

Will My Family, Friends or Employer Find Out I Filed Bankruptcy?

If you owe money to any of these people, they will need to be listed in your bankruptcy schedules and will be notified.  DO NOT PAY OFF A FAMILY MEMBER BEFORE YOU FILE BANKRUPTCY, SO THAT YOU DO NOT HAVE TO LIST THEM AS A CREDITOR.  If you do this, the bankruptcy trustee will take that money back from them.

Bankruptcy is a matter of public record.  Some newspapers print bankruptcy filing information in their Legal Notices section.

Can I File For Bankruptcy Only on Certain Debts and Not Others?

You must list all of your debts when you file for bankruptcy.  After your petition is filed, you may be able to make an agreement to repay certain creditors.  This may not be a wise decision.  Most people file bankruptcy to get a fresh start.  Dragging old debt into your new financial life often denies you the maximum benefits of filing bankruptcy.

How 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 any worse.

The fact that you've filed a bankruptcy can appear on your credit record for ten years.  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.

What Property Can I Keep?

In a Chapter 7 case, you can keep all property which the law says is "exempt" from the claims of creditors.  You can choose between your exemptions under your state law or under federal law.  In many cases the federal exemptions are better.

In determining whether property is exempt, you must keep a few things in mind.  The value of property is not the amount you paid for it, but what it is worth used.  Especially for furniture and cars, this may be a lot less than what you paid for it when it was new.

You also only need to look at your equity in property.  This means that you count your exemption on the amount over and above what you owe (if anything) on the item.  For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you were to sell it.

While your exemptions allow you to keep property even in a Chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property back if you don't make your payments.  In a Chapter 13 you can keep all of your property if your plan meets the requirements of bankruptcy law.  In most cases you will have to pay the mortgages or liens as you would if you didn't file bankruptcy.

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 the mortgage or auto loan.  

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:

1) money owed for child support or alimony, fines, and some taxes;

2) debts not listed on your bankruptcy petition;

3) loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;

4) debts resulting from "willful and malicious" harm;

5) most student loans, except if the court decides that payment would be an undue hardship;

6) mortgages and other liens (but bankruptcy will wipe out your obligation to pay any additional money if you surrender the property, or it is repossessed or foreclosed on).

Will I Have to Go To Court?

Yes.  In most bankruptcy cases, you only have to go to a proceeding called the "meeting of creditors" (also known as the 341 meeting) 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. If you file a Chapter 13 you may also have to attend your confirmation hearing.
 

What Else Should I Know?

Utility services - Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy.  However, the utility can require a deposit for future service, and you do have to pay bills which arise after bankruptcy is filed.

Discrimination - An employer or government agency cannot discriminate against you because you have filed for bankruptcy.

Co-Signers - If someone has co-signed a loan with you and you file for bankruptcy, the co-signer will probably have to pay your debt.

Honesty - It is important to be honest when completing bankruptcy petition and schedules.  An experienced bankruptcy attorney can deal with most situations that arise IF THEY KNOW ABOUT THEM BEFORE YOUR CASE IS FILED.  Deciding not to tell your attorney about something relevant to your financial situation is a mistake.  If you conceal information the penalties could be substantial.  Bankruptcy fraud is punishable by a fine and imprisonment.  Your attorney may also be held personally responsible for the inaccuracy.

Remember:  The law often changes.  Each case is different.  This website is meant to give you general information and not to give you specific legal advice.