Q: Why am I allowed to file bankruptcy?
A: Title 11 of the United States Code gives people the right to periodically discharge their debts. This is necessary for the overall peace and well being of the United States citizenry. Due process and the right to life, liberty, and the pursuit of happiness dictate that a person should not be forced to live continually under the threat of foreclosure, debt collection, lawsuits, asset attachment, and wage garnishment.
Q: Should I file for bankruptcy?
A: If you are afraid to answer the phone or open the mail because you are afraid of creditors, have lost your job, are suffering reduced salary, are facing foreclosure or repossession, or are experiencing high medical or credit card bills, then bankruptcy may be an option for you.
Bankruptcy is about starting over fresh. It is about getting back in control of your financial future.
Q: Does bankruptcy stop creditor and collector harassment?
A: Yes. The instant you file bankruptcy, you get the protection of the Automatic Stay. The Automatic Stay prohibits collection efforts by your creditors. Creditors must go through the bankruptcy court in order exercise any rights they may have.
Q: Will bankruptcy stop me from ever getting credit again?
A: No. This is a myth perpetuated by the credit industry. In fact, most people’s credit scores increase substantially immediately after their discharge. Many people can expect an 80-100 point increase in their credit score within a year of filing. Depending on the circumstances, you could be in a position to purchase a home two to four years after a bankruptcy.
Q: What are the different types of bankruptcy?
A: There are multiple types of bankruptcy, but the most common forms are Chapter 7 and Chapter 13.
Q: What is Chapter 7 bankruptcy?
A: Chapter 7 bankruptcy is the quickest, easiest, most affordable, and most popular form of bankruptcy. Chapter 7 bankruptcy allows for the discharge of unsecured debts (like credit cards or medical bills) without having to pay any of it back. A Chapter 7 bankruptcy can be filed, and a discharge received, every 8 years. To qualify for Chapter 7, you must pass the Means Test or an income level test.
Q: What is Chapter 13 bankruptcy?
A: Chapter 13 bankruptcy is an alternative to Chapter 7 bankruptcy that is filed when you do not qualify for Chapter 7, want to save a home or car, or want to pay priority or non-dischargeable debts (i.e. past due taxes, child support, etc.). You would be required to make payments for up to 60 months to pay off a portion of your debts. The remainder would be discharged.
Q: What is the Means Test?
A: Under The Bankruptcy Abuse Prevention And Consumer Protection Act of 2005 (BAPCPA), the United States Congress changed bankruptcy laws in an effort to make it more difficult for people to file for Chapter 7. They were successful in some respects. The largest obstacle created by Congress is the Means Test. This is a test to determine if you have the means to repay your debts. The first step is to compare your income with the median income for a household the same size as your household in your state. Your income is based on your average income for the six-month period prior to the month of filing. If your income is less than the median, then you qualify for Chapter 7 bankruptcy. If your income is more than the median, then a complex determination of the amount of money remaining after expenses, relative to the amount of your unsecured debt obligations, is made. If you have too much money to spare, you fail the Means Test and are forced to file Chapter 13 bankruptcy. If you have only a small amount remaining (usually in the range of $100-200), then you pass the means test and qualify to file Chapter 7.
Q: Is it impossible to file bankruptcy due to BAPCPA and the means test?
A: No. For most people, bankruptcy can still be fairly painless and straightforward.
Q: Do you lose all your property when you file bankruptcy?
A: No! Almost anything within reason is protected by state exemptions.
Q: What are exemptions?
A: Exemptions are state laws that provide protection for your personal and real property. Property that is exempt is protected from liquidation in a bankruptcy, which means you get to keep it. Exemption planning, along with the Means Test, is one of the most important services our office provides.
Q: What is a homestead exemption?
A: The homestead exemption exempts one’s homestead. The homestead exemption in Misouri is $15,000.00 and Illinois is $13,000.00.
Q: Does bankruptcy get rid of all debts?
A: No. Chapter 7 and Chapter 13 bankruptcy can discharge most debts, but there are a few that are not dischargeable. Some of the more common types of non-dischargeable debts are child support, alimony, most taxes (generally taxes less than 3 years old), criminal restitution, 401(k) loans, student loans, and debts incurred through fraud or misrepresentation.
Q: What are the basic steps involved in a bankruptcy?
A: After providing our office with all the necessary documents and information, we will prepare your petition for filing. However, before we can file your bankruptcy case, you will be required to take a credit counseling course that we will arranged for you to complete over the telephone or online. After you are filed, you will have to go to gernerall one court appearance to answer basic questions with regard to your finances, assets and debts. You are then required to take another course in financial management, which again we arrange for you to complete over the telephone or online.
If you are in Chapter 7, you will then wait for your discharge.
If you are in Chapter 13, the next step is to wait for confirmation of your plan; once confirmed you just keep making your payments and you will get your discharge after all of the payments are made.
Q: How long does a bankruptcy last?
A: A Chapter 7 bankruptcy takes about five months from the day of filing until you are discharged. A Chapter 13 can last up to 60 months and does not end until you have made all your payments.
Q: What is a reaffirmation agreement?
A: Reaffirmation agreements are typically entered into with respect to secured debts, such as the debt on a home or a vehicle. By signing the reaffirmation agreement, you reaffirm your obligations under the original contract. This means you are still responsible for the debt and still make the payments, but of course you get to keep the home or vehicle.
Q: What does it mean to surrender property?
A: In bankruptcy you can often surrender the collateral that secures a secured loan, like a home or a vehicle, and surrendering the collateral satisfies the debt completely, regardless of what the property might sell for at auction. Usually, a vehicle that you surrender will be turned in within a few weeks to a few months of your bankruptcy filing. If you are surrendering a house, it may often take several months before the property is sold, and you can usually continue to occupy the property at little to no expense.
Q: Is a bankruptcy filing confidential?
A: Although a bankruptcy is part of the public record, these records are typically only available through the the Federal Court PACER system. For a friend or family member to know you filed bankruptcy, they would have to go out of their way to access the appropriate database and specifically seek you out. This is ususally a very difficult process.