Bankruptcy FAQ

Chapter 7

Chapter 7 Bankruptcy serves as a way for a debtor to completely dismiss debts they have acquired, including credit card debt and medical bills, while excluding secured debts. A secured debt is a debt attached to an asset and can be repossessed by the creditor if the debtor defaults on their payments, such as a house or motor vehicle. A debtor has the option of holding onto the assets, or allowing voluntarily repossession by the creditor at the end of the bankruptcy process.

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Chapter 11

Chapter 11 Bankruptcy is intended for businesses and is very complex. It requires that the business have cash flow, similar to a Chapter 13, and is an expensive process requiring approval by the courts. Many small businesses can be saved at a fraction of the price by having the owner file a Chapter 7.

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Chapter 13

Chapter 13 Bankruptcy can be described as a “reorganization” bankruptcy. It allows the debtor to repay back portions of his debt over a period of three to five years. Chapter 13 is usually reserved for those who have a steady income to repay the debt. A Federally appointed Trustee determines a manageable monthly payment amount the debtor will be required to repay based on his debt and income. This amount will be paid back on a monthly basis for a period of three to five years, and most often results in the debtor paying only a percentage of the total debt owed. When fling a Chapter 13, if a home is worth less than the first mortgage, the second mortgage is considered “unsecured” and can be placed with the other unsecured debt into the repayment plan.

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Spouse

Filing bankruptcy does not require your spouse to file with you. More importantly, filing for bankruptcy will not ruin your spouse’s credit. However, if the debt is listed in both spouses’ names, then a married couple should file for bankruptcy together, and eliminate the debt looming over both of them. Spousal support and child support are almost never dischargeable.

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House, Vehichles and Other Secured Debt

Bankruptcy alone will not cause the repossession of your car or the foreclosure of your house, however, in order for the debtor to retain possession of those items they must stay current on their monthly payments regardless of the bankruptcy. Bankruptcy also provides an opportunity to walk away from unwanted property by simply ceasing payments and returning the property at the end of the bankruptcy process. Many debtors take advantage of this opportunity and return items they owe more money on than those items are worth.

Other Personal Items:

Bankruptcy law has provided exemptions to allow debtors to keep most of their personal items, including household items such as furniture, clothing and jewelry. Debtors should not be worried about losing these items when filing for bankruptcy. The point of bankruptcy is not to liquidate personal affects, but to offer a fresh start free of debt.

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Foreclosure

Banks will usually send a 30 day notice warning of an inevitable home foreclosure. After the 30 days expire, another notice will be sent notifying the homeowner of the actual foreclosure. At this point filing for bankruptcy will not stop eviction. It is highly recommended homeowners seek out a bankruptcy attorney after they receive the first warning. Filing bankruptcy does not stop the foreclosure process; it simply puts a pause on it allowing the homeowner an opportunity to catch up on mortgage payments. If the homeowner is unable to make payments, he may continue living in the home and save for future rent until the bankruptcy is complete, usually 60-90 days from the date of filing. After this point, he has the option of getting current with mortgage payments or simply living in the home until the point of eviction.

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Filing Process

In order to file for bankruptcy, you must first come in for a free consultation. If deemed eligible after consultation, you must submit to us the following information on the forms provided: List of any owned property (even if in another country), list of all unsecured debts (such as credit card debts and medical bills or any debt not attached to an asset ), the mortgages owed and any property taxes due, a list of lawsuits you’ve been involved in, any personal loans, both you and your spouse’s yearly income and line of work, and a current monthly budget listing all expenses from your phone bill to the amount you spend on food every month, your last two filed tax returns, and finally your pay stubs from the previous 6 months of employment. Intentionally failing to report a creditor may cause your case to be dismissed on grounds of perjury. If the omission is an honest mistake, you are allowed to amend this problem at an extra fee.

After this information is received, we will file your case with the court and accompany you to a required 341 Hearing (or a hearing of the creditors), which takes place about 30 days from the time we file your case. The hearing takes place before a federally appointed trustee to ensure you are eligible for the Chapter 7, or to determine your Chapter 13 payment plan amount. This meeting is not in a formal courtroom and you will not be required to stand before a judge.

Approximately 60 to 90 days after your hearing date, your case will be complete and all Chapter 7 debt will be discharged, or Chapter 13 debt will be restructured.

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