FREQUENTLY ASKED QUESTIONS ABOUT BANKRUPTCY
1. Is it true that Chapter 7 bankruptcy may help me get out of debt?
Yes. United States federal law expressly provides protection under Chapter 7 of the Bankruptcy Code to allow you to have a fresh start with your finances. In most cases, Chapter 7 eliminates most of your unsecured debt, including credit cards, any outstanding amount due on a repossessed vehicle(s), victim compensation owed as a result of judgment against you in an auto accident, medical expenses, most personal loans and more.
Plus — provided that your automobile and mortgage payments are up-to-date, and you do not have sizable equity in your property — Chapter 7 will allow us to reaffirm your auto and home loans. That means that you retain ownership and continued use of existing property including your home, vehicle and all of your other valued personal possessions.
2. What is a Chapter 13 bankruptcy?
If you are employed, or have some other steady income source, a Chapter 13 bankruptcy allows you to take advantage of an interest-free debt repayment program designed just for you.
In a Chapter 13, a Federal Court consolidates your debts for repayment over a three-to-five-year period, based upon your individual situation. Your monthly payment will be made to the Court, and is calculated to ensure you still are able to pay living expenses during the repayment period.
Creditors cannot harass you once a Chapter 13 is in effect: they are required by Court order to honor the terms of your reorganization.
When you consolidate under Chapter 13, all of your outstanding debt must be included in your repayment plan. Some examples of debts that may be consolidated in a Chapter 13 include credit card balances, mortgage arrears, student loans, child support arrears, vehicle loans and other forms of unsecured debt.
3. Will I lose anything by filing for bankruptcy?
You have virtually nothing to lose by filing for a Chapter 7 or Chapter 13 bankruptcy.
Typically, either scenario provides a solution for you to get out of debt while allowing you to retain everything you own, including your vehicle, your home and all of its furnishings — all of which are exempt by law up to specified amounts.—In Louisiana, you can exempt up to 35K worth of equity in your home and $7,500 worth of equity in your vehicle(s).
For example, you owe more on your auto loan than your car is worth. A bankruptcy court would not sell your car in that instance, as there would be no funds remaining with which to reimburse creditors after its sale. The truth is, without bankruptcy protection, you may be at greater risk of losing your belongings. Without Chapter 7 or Chapter 13 to shield your assets, you are vulnerable to creditors who may take you to Court, attach your bank accounts, garnish your wages and seize your property. As a result of such hostile actions by creditors, you may be thrust into a downward economic spiral, leaving you without the monthly cash flow to cover basic necessities like rent, mortgage and car payments, groceries and medical care.
4. How can I determine if bankruptcy is the right course of action for me?
Is a creditor(s) presently suing you? Declaring bankruptcy will stop the lawsuit immediately and prohibit creditors from placing a lien against your property and from garnishing your income.
Is your home under foreclosure? Are you facing vehicle repossession? If your house and/or car are the subject of foreclosure/repossession efforts, Chapter 7 may not be an option for you, however: Chapter 13 bankruptcy may provide your only recourse to avoid foreclosure and/or repossession.This action allows consolidation of your mortgage and automobile balances. You make payments within a plan that you help structure to ensure you are able to meet your payment obligation each month.
Are you so far behind on your credit card, medical or personal loans that you are unable to save for your future? Making the minimum required payment on card balances month after month will keep you in debt for decades to come – maybe even well into your retirement years. Consider this: the minimum monthly payment represents only a scant two or three percent of your total balance, and credit card interest rates can soar upwards of 15 percent. If you had $10,000 in debt under these circumstances, it would take 20 years to pay off the debt – and that’s assuming you made no further purchases using that line of credit!
5. Is filing bankruptcy immoral? Does it make me a bad person?
Certainly not: By law, everyone is entitled to wipe the slate clean and start over, including you.
There are situations in life that can catch you off guard and eliminate your ability to make ends meet, through no fault of your own. For some people, it’s an unexpected loss of livelihood, a dire medical situation or a work-related injury. There is no way to anticipate and plan ahead for these or a myriad of other challenges you may have to face.
If you feel conflicted, you are not alone: the majority of our clients have a difficult time deciding if bankruptcy is the right choice for them, and for most of the people we help, it is a last resort. Our clients are responsible, hardworking people who simply have met with adverse circumstances and, like you, they just need a fresh start.
As you weigh your decision, it is helpful to consider that your creditors have no empathy for the financial troubles you may be encountering. They are not concerned if you are living paycheck-to-paycheck, or that you may be unable save for your children’s education or invest toward retirement.
6. When can I expect relief from creditor harassment?
Almost immediately: As soon as your bankruptcy is filed with the Court, creditors may no longer assert any legal claim to your property or resources, and must cease contacting you. Bonus: Any wage garnishments in effect prior to this filing will cease, as well.
7. Should my spouse file jointly with me?
Maybe not; however, each case is different and a final decision on whether or not to file jointly should not be made until we’ve had an in-person meeting to review your specific circumstances.
8. Will others be aware of my bankruptcy?
Only you, your creditors and the Internal Revenue Service (IRS) receive notification of the bankruptcy. Although the IRS is notified, for the most part, a bankruptcy will have no impact on your tax status. Do bear in mind that a bankruptcy filing is a public record, so technically anyone who wants to check could discover that you had filed. For the most part, however, the process is discreet and only you, your creditors and the IRS will be aware of your filing.
9. Can bankruptcy eliminate my student loans or tax debts?
Student loans may be addressed only within a Chapter 13 bankruptcy, which provides for the consolidation of your student loan balance along with all other outstanding debt via an interest-free repayment plan. To ensure your consolidation payment as low as possible, the Hunt Law Firm will work to reduce the total amount you will be responsible to pay to the student loan agency during the course of your debt repayment plan. Tax debts are more complex, and an in-person consultation will allow us to provide answers for your specific situation.
10. Will I be able to rent after I file bankruptcy?
Would you be amazed to learn you actually may have an easier time renting after filing Chapter 7 or Chapter 13 bankruptcy than before you filed? It’s true. Your new debt-free status may help you appear to be a better risk compared with applicants presenting with outstanding debt and tarnished credit histories.
That said, there are some things you should know about renting after bankruptcy:
If you’re renting an apartment or home at the time of bankruptcy, it’s very likely your present landlord will renew your lease without pulling a current credit report — and therefore will have no knowledge of the bankruptcy. In general, large leasing firms adhere to policies that are much stricter than those of smaller rental companies or individual owners. Should you encounter resistance from a prospective landlord, it may be helpful to offer an extra month’s rent as a security deposit. This good faith gesture on your part may convince the landlord to rethink his or her concerns about renting to you. Also keep in mind that it’s not so much a past bankruptcy as it is a negative credit report in general that usually is at the root of difficulty in renting. Chapter 7 and Chapter 13 bankruptcy help you avoid the havoc debt can play with your credit score.
11. Will filing bankruptcy ruin my credit?
“Credit” may be defined as your ability to borrow money. If you are considering bankruptcy, it’s likely you have more outstanding debt than you have the ability to pay at this time. If so, you currently do not have credit. Financial institutions consider a variety of factors to determine if they will extend credit to you. The most important factor is your debt-to-income ratio.
Bankruptcy eliminates most or all of your debts, dramatically improving your debt-to-income ratio – and very possibly improving your ability to borrow money in the future. In fact, some lenders seek out business from people who recently have filed bankruptcy, since they know these individuals will not be able to file again for six years, and so presumably will have to honor any new debt they incur.
Some points to keep in mind:
Because bankruptcy may show up on your credit report for up to 10 years, we urge you to begin rebuilding your credit immediately after your bankruptcy is filed; Many lenders have special programs to allow post-bankruptcy home loans a year or so after filing bankruptcy; A number of our clients have purchased new vehicles as soon as their bankruptcies were discharged; Many of our clients begin receiving direct mail solicitations for unsecured credit cards nearly in tandem with receipt of their bankruptcy discharge. A word to the wise: avoid accumulating credit card debt, regardless of how attractive the offer may seem.