Andrews, Bongar, Starkey & Clagett: Southern Maryland Attorneys

What You Need To Know About Bankruptcy

If you are plagued by burdensome debts, Bankruptcy may be the answer for you. Bankruptcy is a valid legal tool that nobody should be reluctant to use when they have the need. The law has always seen a need to give people a fresh start from oppressive debts. Did you know that Bankruptcy Courts are specifically called for in the US Constitution?

Bankruptcy has always been a complicated legal process, and became even more complicated in 2005 with the passage of the Bankruptcy Reform Act. This article will outline what you need to know about the process. It will explain what bankruptcy really is, and what bankrupcty does and does not do. It will get you prepared in the event you need to file one, and tells you how to re-establish your credit after a bankuptcy. Be sure to read “Our Most Important Advice” on the right side of this page.

To listen to Dave Gormley appearing on the Southern Maryland Perspectives radio program discussing Bankruptcy, click here.

Should I File For Bankruptcy?

Should you file for bankruptcy? This is everyone’s big question. After the Bankruptcy reform act of 2005, the answer is simple – we cannot tell you in this article. Sorry. The new law made it impossible to give simple guidelines or suggestions on who should file for bankruptcy.

How can you find out? You can call us and schedule a free consultation to discuss it. Yes, the consultation is free, so you have nothing to lose but your time. However, you do have to come in and meet with us face to face. You can discuss your situation and your specific debts with an attorney who can then discuss your eligibility to file bankruptcy.

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What is The Purpose of Bankruptcy?

The purpose of bankruptcy is to wipe out burdensome debts and give you a fresh start. This is accomplished through the “discharge” you receive at the end of your bankruptcy case. The discharge releases you from personal liability on your debts, and prevents creditors from ever taking action to collect the debts. That discharge is the goal of every bankruptcy case.

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Who Controls My Bankruptcy Case?

Bankruptcy is a federal law. All bankruptcy cases are filed in the U.S. Bankruptcy Court and are controlled by the US Bankruptcy Judges. However, most of what these Judges do is administrative. The Judges appoint Trustees to oversee bankruptcy cases. Most of your interaction will likely be with the Trustee instead of the Judge.

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Can I Discharge Every Debt?

No. Bankruptcy cannot cover every debt. Child support, spousal support, tax debts, and student loans are non-dischargeable. Most debts are dischargeable. Examples of debts you can discharge include credit cards, medical bills, and unsecured loans.

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What are The Different Types of Bankruptcy?

There are several different types of bankruptcy, usually named after the chapter of the law that discusses them. Individuals will usually be concerned with Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. There are other types of bankruptcy that may be used as well, and your attorney can discuss them if they apply to you.

Chapter 7 is called “liquidation” and is usually used when you have no assets or income from which to pay debtors. The Trustee will take control of your non-exempt assets, sell them as necessary, and pay off creditors if there is any money. However, you can retain certain specific property, called “exempt” assets. Things like your house and your car can be shielded from the Trustee’s reach as long as you can continue to pay for them. Don’t worry. You do not automatically become homeless or lose your car if you file for bankruptcy. Many of your assets can be exempt depending on their value.

The bankruptcy laws do not aim to put you in the poorhouse by seizing everything you own. Most Chapter 7 bankruptcy cases are called “non-asset” cases, because the debtor has no assets that are not exempt under the law. In that case, there is no sale of assets and the debtor just gets the discharge at the end of the case. What assets are exempt and what are non-exempt is a long list and it can change. This is a great question to ask an attorney in an initial consultation. If you qualify for Chapter 7, you will probably find that most of your possessions will remain in your control.

Chapter 13 is for someone with regular income over the means test, and who may want to keep a valuable asset that would otherwise be sold in Chapter 7... like your house. The “means test” involves looking at income and expenses over a certain time period and running some specific guidelines. A bankruptcy attorney can figure this out for you. Chapter 13 involves structuring a repayment plan where you will repay your debtors over time, usually 3-5 years. Your attorney will structure a repayment plan that will be filed with the Bankruptcy Court. The Court must either accept it or reject it. If they accept it, you will make payments to the Trustee, who will pay your creditors for you.

Not all creditors will be repaid 100% of the debt owed. Some will receive less, maybe a lot less, depending on the status of the debt (secured, unsecured, priority, etc.) Your attorney can explain the various types of debt. The list is too long to detail in this article. But generally speaking, secured debts are debts where they take the object if you don’t pay, like your house or your car. Those debts get paid at 100%, or you lose the object securing the debt. Unsecured debts are like credit cards, where the only guarantee was your signature on the application. They are paid last. Certain debts, like taxes and child support, are priority debts and the Trustee will pay them first and in full.

You are protected from any lawsuits or garnishments due to the debt while your plan is pending. Once the payments are fully made, you will receive your discharge and will be relieved of liability for all your debts, no matter how little the creditor received in the plan.

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What is The Automatic Stay?

At the moment you file for bankruptcy, most other legal cases against you are stayed until the bankruptcy is over, the debts are discharged, or the stay is lifted by the Bankruptcy Court. To “stay” a case means to put it on indefinite hold. The case does not go away automatically. It just sits on hold. If the case involves a debt that will be discharged in the bankruptcy, it will indeed go away when you get your discharge. But many other cases can be stayed like foreclosures, landlord & tenant actions, etc. If the case does not involve your bankruptcy, the other attorney can ask the Bankruptcy Court to lift the stay – meaning to allow the case to proceed. So although you can buy some time by filing for bankruptcy, it is not an permanent answer to all your legal troubles.

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How Do I Stop Foreclosure On My House?

See the section on Automatic Stay above. That includes foreclosures. How Do I Stop Foreclosure On My House?

See the section on Automatic Stay above. That includes foreclosures. If you are close to foreclosure, your mortgage payment is likely to be a debt that is handled by the bankruptcy case. Usually, your arrears (the amount you owe at the time of bankruptcy) will be paid through the bankruptcy plan, while you will have to keep making your regular payments every month. That enables you to keep the house. However, you will have to make your regular mortgage payment immediately after filing the bankruptcy, and will have to make plan payments within 30 days. You cannot just stop paying your mortgage if you want to save the house. An attorney can tell you how much these payments will be, and when they will have to start.

Special note for foreclosureso not wait until the last minute to see an attorney. Under the new law, it is harder to run to the Courthouse and file to stop a foreclosure. It may take more time. You will always know a foreclosure is coming. They have to give you notice. If you get notice, or even a warning, you should consult an attorney then.

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What Do I Need To Do Before Filing Bankruptcy?

First, see an attorney. Theoretically, if you had no assets, you could file your own Chapter 7 case before the Bankruptcy Reform Act of 2005. That is no longer advisable. The new law makes bankruptcy a complex process far more involved than just filling out forms. Theoretically, you can still do it yourself, but you will have to be very diligent.

You will have to undergo a consumer credit counseling class before filing your bankruptcy. It is an online class. It is a specific requirement of the new law. Your attorney can set this up.

You will need documents. Under the new law, there is a lot we need to know about your debts, income, expenses, etc. Therefore, you will have to do some homework. Here is a list of documents you need to gather and things we need to know.

1. All current sources of income (including paycheck, pension, social security, child support, alimony, etc.).
2. Documentation of all major financial transactions (like the sale of a house or car).
3. Itemization of your monthly expenses.
4. All of your debts. (Important! If you do not include a debt during the administration of your case, that debt is not discharged and you will remain liable for it. Be sure you get all debts you owe when compiling this list.)
5. Two years of tax returns.
6. Deeds and titles to all real and personal property (like the deed to your house, the title to your car, etc.).
7. Certificate of credit counseling (when you take the course).

Do you need to get all of this in order before seeing an attorney? No. You can consult with an attorney at any time, and we encourage you to do so sooner rather than later. You should find out whether you are eligible for chapter 7 or chapter 13, and how to handle your debts now. However, you will need all of the items in this list before you can actually file for the bankruptcy.

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What is The Process For Filing Bankruptcy?

After you meet with the attorney and go through the means test, you will know if Chapter 7 or Chapter 13 is right for you. Before you can file the Bankruptcy, you will have to complete an information packet, including a detailed financial statement. The financial statement lists all of your debts, assets and expenses. This packet will be used as the raw data for drafting your bankruptcy petition.

You will also have to take a credit counseling class, which can be done online or over the phone. We will provide you the list of approved court counselors and we can recommend a few that other clients have liked.

At that point, a Petition will be drafted which includes all of your information and is designed to show your current financial situation. A “Petition” is the name given to the formal document you file with the Court to start the bankruptcy process. Once the petition is drafted you will need come in to review it and sign it. The petition will than be electronically filed with the bankruptcy court. Once the case is filed you get a case number, and the automatic stay goes into effect.

If you file a Chapter 13 bankruptcy, a repayment plan will be filed along with the Petition. Details of the plan will be structured by your attorney, but in general, the plan will look at your net monthly income, subtract reasonable expenses (which are governed by the new bankruptcy statute) and see if there is income left over. If there is, that amount will go to pay your creditors. These payments will go to the trustee automatically by a garnishment on your wages.

Before completing the bankruptcy process, you must take a financial management course. This is in addition to the consumer credit counseling class you already took. An attorney can help you set up this second class as well.

After you file your bankruptcy petition, the Trustee will hold a “meeting of creditors.” This is also sometimes informally called a “341 meeting” because that is the section of the code which governs it. Before the meeting you will need to provide the trustee with pay stubs, tax returns and bank statements. At the meeting you will need to produce a photo id (drivers license) and proof of your social security number (social security card or military id). You will have to appear at the meeting and the Trustee will interview you. Your attorney will be present for this meeting. Your creditors are allowed to appear and ask questions, but they do not usually show up. The Trustee and the creditors will be trying to make sure you have disclosed all of your assets. After the meeting, the Trustee and the creditors have 60 days to object to your right to a discharge. This does not usually happen, as long as your petition is accurate. Your attorney will handle it if it does happen. If there is a dispute over the plan the case may have to go to a confirmation hearing in front of a bankruptcy judge.

If you file Chapter 7, the Bankruptcy Court will eventually grant your discharge and your bankruptcy is concluded. This will happen 30 days after the creditor’s deadline to file objections, which is usually about 4 months from the date you file the bankruptcy. If you file Chapter 13, a Confirmation Hearing will be held to determine if the repayment plan filed with your petition will be confirmed or denied. If your plan is confirmed, you will pay according to the plan and any debts left over when the plan is finally paid will be discharged. You get your discharge after you complete the plan payments. If the plan is denied, you will get a chance to amend the plan. If your plan cannot be confirmed, it will be dismissed and you will back to square one as if you never filed. That does not often happen if you are represented by an attorney.

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How Will Bankruptcy Affect My Credit And How Can I Rebuild It?

Filing for bankruptcy will probably not affect your credit as much as you think. All credit reports will show your bankruptcy for a period of 10 years. However, if you pay your bills on time for 18 months to two years, you will re-establish your credit rating and people will loan you money again. They may charge you a slightly higher interest rate, but they will loan you the money.

Good ways to re-establish your credit after bankruptcy are: (1) Pay all your bills on time. (2) Get a job if you did not have one before. Even a part time job will look good. (3) Get rid of all but one or two credit cards, and be absolutely sure to pay them off every month. Many people who file for bankruptcy are amazed that they receive pre-approved credit cards in the mail after they get their discharge. That is because you cannot file Chapter 7 bankruptcy again for 8 years. They figure they will make money on you in the meantime. Resist the urge to open these accounts. (4) You should make sure none of your checks bounce during this time. Be extra sure you have the money in the bank before writing the check. (5) If you get a car loan, make sure you pay it on time and in full each and every month. Car loans are the number one type of debt that will increase or decrease your credit rating after filing bankruptcy. All of these actions will show a future creditor that you have learned how to properly handle your finances.

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How An Attorney Can Help?

You can quickly see that an Attorney is probably necessary to file a bankruptcy after the Bankruptcy Reform Act of 2005. It wasn’t easy before that, but is very complicated now. We cannot advise anyone to handle their own bankruptcy case. There are a limited number of attorneys who handle bankruptcy cases. We have been handling bankruptcy cases for many years here at Andrews, Bongar, Starkey & Clagett. The consultation is free, and as I mentioned in the beginning, we really cannot properly advise you unless we talk face to face. If you want a free consultation on your bankruptcy case, please call us at your convenience, or fill out the contact form and we will contact you. Contact us

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More legal info & tips to keep you safe.
For examples of past issues, click here.