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Who can file bankruptcy?
Almost all
individuals can file under either Chapter 7 or Chapter 13.
Generally, you can eliminate unsecured debt under Chapter 7, but
you must continue payments on your secured debts, such as your
house and car, and you must cure any past due payments. You can
reorganize your debts under Chapter 13 by submitting a Plan that
requires you to make a monthly payment to a Trustee, who than
pays your creditors. There are different income and financial
requirements under each chapter – for example, Chapter 13
requires that you have monthly income, while Chapter 7 does not,
and to qualify for Chapter 7, you must meet certain income,
monthly expense, asset and debt limits. John V. Burger and his
staff at the Burger Law Firm can evaluate your circumstances and
help you make the correct decision regarding bankruptcy.
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Do different kinds of debts
make a difference?
Debts may be
classified as secured or unsecured, individual or joint,
dischargeable or non-dischargeable – meaning a debt can be wiped
out at the end of your case, or you will remain responsible for
payment of the debt. Secured debt is backed by collateral – you
pledge a car as collateral to the finance company when you sign
your contract, and you pledge the real property as collateral to
the mortgage company. Secured debts must be paid if you wish to
keep the collateral; otherwise, the collateral must be
surrendered to the lender. Unsecured debt has no collateral; in
a Chapter 7 case, this type of debt is usually discharged if the
debt was made in good faith.
The proper
classification of debts is very important and affects both the
chapter under which you should file and whether you can
discharge the debt. The qualified team of the Burger Law Firm
can determine the classification of your debts and maximize your
debt relief.
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What about different kinds of
property?
Property
also has different classifications, such as exempt or
non-exempt. The laws of each state determine how property will
be treated. For example, the Bankruptcy Code provides that a
certain total value of household goods, clothing, etc. –
generally, personal property that is used for ordinary living –
is exempt. There are limits on different types of property that
can be exempt. These values are changed from time to time
(usually raised to keep up with the cost of living). If you have
property that is not exempt, it can affect which chapter under
which you wish to file. Your attorney can give you the
information you need.
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Can I file with my spouse?
In most
cases, the simplest way to file is a joint bankruptcy – husband
and wife own property jointly and are equally liable for
community property debts. However, there are advantages and
disadvantages to filing jointly with your spouse, depending on
your debt situation and whether you on or both spouses own
separate property. This is something an experienced attorney can
guide you through.
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Will I still owe taxes after I
finish my case?
Although
most people assume that taxes can never be discharged, a debtor
can sometimes eliminate liability for certain taxes. Whether
taxes can be discharged is determined by many factors, such as
the type of tax owed, the age of the obligation, whether a
return was properly filed, whether proper notice was received,
etc.
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Can I keep my house and car?
In most
cases, yes. Sometimes when you hear about Chapter 7, the term
“liquidation” comes up. In individual debtor cases, liquidation
only applies to property that is not exempt (perhaps that ski
lodge in which you have equity) – not your clothes, not your
car, not your house, not your pet. The term “liquidation” more
routinely applies to business cases, where the assets of a
business are sold by a trustee for the benefit of the creditors.
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What is a bankruptcy discharge?
This is an
Order from the Bankruptcy Court granted upon the completion of a
bankruptcy case, providing that certain debts have been legally
wiped out – the debtor is not responsible for payment of those
debts, and the creditors may not attempt to collect those debts
by any means. The debtor remains responsible for continuing
payments on secured obligations with remaining debt, such as
mortgages and car payments, and the creditors may seek
foreclosure or repossession if those debts are not paid.
However, in that event, the creditor may not follow the debtor
for any deficiency after the collateral is taken. The debtor
also remains responsible for payment of any debt that is
determined to be nondischargeable.
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What debts can I discharge?
Generally,
most unsecured credit debt may be discharged by completing a
bankruptcy case. There are exceptions to discharge established
by Section 523 of the Bankruptcy Code, such as certain tax and
customs duties, certain debts for luxury goods over a money
limit, child support, debts for money or services obtained by
fraud, fines, debts under orders for restitution, etc. Another
type of debt that cannot be discharged: a debt that a debtor
failed to list in the schedule of debts filed in the bankruptcy
case. Thorough disclosure of debts is imperative.
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How long does bankruptcy take?
In a Chapter 7
case, once the complete schedules are filed - including the
petition and statements of all property, exemptions, debts,
statement of affairs, income and expenses – a meeting of the
creditors will be scheduled within a few weeks. After that
meeting, the Trustee will file a report and either recommend
entry of the discharge order, or object to discharge. If no
objection is made by the Trustee or any creditor, the entire
case can be finished within 90 to 120 days.
In a Chapter 13 case, a Plan of Reorganization will be served on
the Trustee and creditors and submitted to the Court for
confirmation. The Plan will take up to five years to complete.
The discharge order will be entered after the Plan has been
successfully completed.
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What happens at the creditor’s
meeting?
Sometimes
called a “341” for the section of the Bankruptcy Code that
describes it, all debtors must attend a meeting of the
creditors. This gives the Trustee - and any creditor who wishes
to attend - a chance to review the petition and schedules and
ask the debtor questions under oath. The Judge is not present,
but the debtor is sworn in and answers the questions under
penalty of perjury. Notice of the meeting is given to all
creditors, who may also attend and ask questions, though their
attendance is not required. In a Chapter 7 case, the Trustee
generally asks questions regarding the debtor’s financial
status, assets and liabilities, and the debtor’s intentions. In
addition to questioning the debtor, a secured creditor may
request that the debtor reaffirm a debt. Within limits, the
debtor may request that the meeting be rescheduled, but the
debtor may not refuse to attend. The case may be dismissed if
the debtor fails to attend a meeting of creditors.
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What does it mean to “reaffirm”
a debt?
In a Chapter
7 case, a debtor can discharge unsecured debt – this includes
unsecured debt, including deficiency debt on repossessed
collateral (a debt is only secured as long as the collateral
exists – take the collateral away, and the debt becomes
unsecured). A creditor usually requests that the debtor
“reaffirm” the debt, meaning signing an agreement to honor the
original terms of the contract and pay the debt, excluding it
from discharge in the bankruptcy. This is the Reaffirmation
Agreement. The Bankruptcy Code provides that reaffirmation may
not impose an undue burden on the debtor or the debtor’s
dependents, and that reaffirmation is voluntary. Usually,
because the terms of the debt are reinstated, the debtor will
only reaffirm secured debts, such as vehicle purchase contracts.
Because reaffirmation excepts the debt from discharge, a
creditor may attempt to collect a debt remaining on repossessed
collateral. There may be an advantage to reaffirming a debt with
a particular creditor, but, because the debt will not be
discharged, it is very important to discuss each situation
thoroughly with a competent bankruptcy attorney.
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What happens when the case is
finished?
Once the
Chapter 7 Trustee files a report or the Chapter 13 Trustee
certifies that the Plan has been completed, an Order Discharging
Debtor is entered, followed by a Final Order. The successful
debtor is no longer liable for discharged debt, continues
payment on retained secured debt, goes on with his or her life
with a FRESH START! And that is the purpose of filing for
bankruptcy protection.
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What about my credit rating?
The
bankruptcy filing does show on your credit reports. However, it
would be highly unusual if an individual contemplating
bankruptcy does not already have a poor credit rating due to
delinquent payments. A discharge of your current debts will
enable you to begin rebuilding good credit. Often, lenders will
begin to offer credit soon after the Final Order is entered. In
fact, it is worth a caution: discharged debtors should be wary
about incurring new unsecured debt – it is all too easy to start
back down the road to unpayable interest rates on credit cards.
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Do you need a lawyer to file
bankruptcy?
Although it is
possible, filing a complicated legal proceeding without an
experienced professional is foolhardy. Usually, a debtor is
already under a certain amount of stress. On one’s best day,
learning several hundred pages of the Bankruptcy Code plus Rules
of Bankruptcy Procedure and Local Rules is a daunting task.
There are also the Trustee’s staff preferences and procedures
that can avoid roadblocks. Add to all that knowledge the task of
researching the experiences of skilled attorneys who have
learned to evaluate the subtleties of exempt and non-exempt
property, etc.
The relief of a successful bankruptcy completion is well worth
paying an attorney's fee from an experienced trusted lawyer. It is telling that
non-bankruptcy attorneys usually do not attempt to represent
themselves in Bankruptcy Court.
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How can I get more information?
It is
important to review your circumstances with an attorney. Many
bankruptcy attorneys offer initial consultations at no charge.
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Call the Burger
Law Firm now at 713-960-9696 to arrange a free consultation.
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