What Is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who can not pay their 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 Can Bankruptcy Do for Me?

Bankruptcy may make it possible for you to:

• Eliminate the legal obligation to pay most or all of your debts.  This is called a “discharge” of debts.  It is designed to give you a fresh financial start.
• Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments.  (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
• Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
• Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
• Restore or prevent termination of utility service.
• Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

What Bankruptcy Can Not Do

Bankruptcy can not 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 creditor is “secured” if it has taken a mortgage or other lien on property as collateral for a 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 on the debt if you decide to give back the property.  But you generally can not keep secured property unless you continue to pay the debt.
• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, most student loans, court restitution orders, criminal fines, and most taxes.
• Protect cosigners on your debts.  When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
• Discharge debts that arise after bankruptcy has been filed.

Will I Meet with an Attorney During my Free Consultation?

Yes. An attorney will assess your financial situation and explain your options

What Does It Cost to File for Bankruptcy?

When you meet one of our attorneys for your free consultation, we will quote you a flat fee that that includes our legal services, court filing fees, the cost of obtaining credit reports, and the cost for credit counseling and debtor education class.  The flat fee we quote is based on the complexity of your case.

What is a debt management plan?

A debt management plan (or DMP) is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors.  Debt management plans can be helpful for some consumers.  For others, they are a terrible idea.  The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not.  You should not consider a debt management plan if making the monthly plan payment will mean you will not have money to pay your rent, mortgage, utilities, food, prescriptions, and other necessities.  It is important to keep in mind these important points:

• Bankruptcy is not necessarily to be avoided at all costs.  In many cases, bankruptcy may actually be the best choice for you.
• If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case).

    

Can I Own Anything After Bankruptcy?

Yes!  Many people believe they can not 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:

• Money owed for child support or alimony;
• Most fines and penalties owed to government agencies;
• Most taxes and debts incurred to pay taxes which can not be discharged;
• Student loans;
• Debts not listed on your bankruptcy petition;
• Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
• Debts resulting from “willful and malicious” harm;
• Debts incurred by driving while intoxicated;

• Mortgages and other liens that are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

 

Will I Have to Go to Court?

In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors” 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.

Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear at a hearing.  In a chapter 13 case, you may also have to appear at a hearing when the judge decides whether your plan should be approved.

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 from the date your case was filed.  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.

If you decide to file bankruptcy, remember that debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not own anything on the debt.  Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult or costly to get credit.  You should check your credit report after your bankruptcy discharge and file a dispute with credit reporting agencies if this information is not correct.

What Else Should I Know?

Utility services--Public utilities, such as the electric company, can not 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 can not discriminate against you because you have filed for bankruptcy.  Government agencies and private entities involved in student loan programs also can not discriminate against you based on a bankruptcy filing.

Driver’s license--If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.

Co-signers--If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt.  If you file under chapter 13, you may be able to protect co-signers, depending upon the terms of your chapter 13 plan.

Why not use a document preparation or paralegal service instead of hiring an attorney?

Document preparation services also known as “typing services” or “paralegal services” involve non-lawyers who offer to prepare bankruptcy forms for a fee.  Problems with these services often arise because non-lawyers can not offer advice on difficult bankruptcy cases and they offer no services once a bankruptcy case has begun.  There are also many shady operators in this field, who give bad advice and defraud consumers.
 

Can I File Bankruptcy Without an Attorney?

Although it may be possible for some people to file a bankruptcy case without an attorney, it is not a step to be taken lightly.  The process is difficult and you may lose property or other rights if you do not know the law.  It takes patience and careful preparation.