Frequently Asked Questions
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Bankruptcy is a legal proceeding in which a person who cannot pay all of his or her bills can obtain protection from creditors and eliminate his or her debts in whole or in part. Bankruptcy is provided for in the Constitution of the United States. The ability to file bankruptcy is established 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. In bankruptcy you are asking the court to provide you with a discharge of your indebtedness. This discharge permanently stops your creditors from seeking to collect current debts from you.
Bankruptcy differs from a negotiated debt settlement plan in two fundamental ways.
First, bankruptcy provides you with a discharge of your indebtedness. A discharge is an order from a federal court that prevents your creditors from ever attempting to collect the debts you currently owe. The discharge is permanent. If a creditor violates your discharge, you may have the right to sue the creditor for money. By contrast, debt settlement relies on your creditors voluntarily agreeing to accept less than the amount that is legally owed. Under debt settlement, you might be able to pay less than is legally owed, but your credit report will likely show the debt settlement as a derogatory item.
The second difference is that the bankruptcy discharge has the effect of closing the accounts you have been unable to pay. This stops the further reporting of derogatory information about these accounts. The effective closing of these accounts on your credit report is what effectively provides you with your fresh start, and in turn the ability to rebuild good credit in the future.
Filing bankruptcy can provide you with many benefits. Chief among these are
- Eliminating the legal obligation to repay most or all of your debts
- Stopping creditor harassment and allowing you to regain your peace of mind
- Allowing you to recover you dignity and rebuild your financial life
- Stopping foreclosure on your home or mobile home and allowing you an opportunity to catch up on missed payments
- Stopping repossession of a car, truck or other property, and allowing you to force a creditor to return your property to you if it has already been repossessed
- Stopping wage garnishee or bank account attachment
- Stopping utility service disconnection, or forcing the utility to reconnect your service if it has already been shut off
- Allowing you to obtain your driver’s license if it was taken because of an accident in which you did not have insurance
- Allowing you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more money than you actually really owe.
No. The bankruptcy code contains protections for those people who seek bankruptcy relief. These protections also include protection against the denial of future utility service and of various government-granted licenses and permits.
A person filing bankruptcy is required to disclose every debt he or she owes. Most debts can be eliminated in bankruptcy, but there are exceptions to this rule. Not every debt can be eliminated in each type of bankruptcy. In general it is possible to eliminate more types of debts under Chapter 13 bankruptcy than under Chapter 7 bankruptcy.
Examples of the types of debts that are commonly eliminated in bankruptcy include credit cards, signature loans, medical bills, utility bills, old income tax debts, and deficiencies owed due to the loss or repossession of property. Examples of the types of debts which may be difficult to eliminate or unable to be eliminated in bankruptcy include support obligations, recently-owed income taxes, student loans, debts owed as a result of fraud and criminal wrongdoing, and damages owed due to injuring someone while intoxicated by drugs or alcohol.
All persons going through bankruptcy have a right to keep some, if not all, of their property. When filing bankruptcy, you have a right under law to claim specific property as exempt, or set aside, free from the claims of your creditors. The ability to claim property as exempt is an important aspect of providing the person going through bankruptcy with a fresh start.
In Ohio, exempt property includes equity in your home, equity in a motor vehicle, household goods, and tools of the trade. Many other types of property are also exempt, such as most retirement plans and many government benefits such as social security and unemployment benefits. Depending on the exemption claimed, however, there may be dollar-amount limits on the amount of equity that can be set aside.
The type of bankruptcy that one chooses to file also affects the amount of property one may keep. It is often possible to keep more property in a Chapter 13 bankruptcy than in Chapter 7 bankruptcy.
The decision to file for bankruptcy protection is often difficult. It may be time to consider filing for bankruptcy protection when the benefits that can be obtained in bankruptcy outweigh the effects of continuing under your current circumstance. If you are overwhelmed by debt, you may want to consider filing for bankruptcy protection. Common indications that you may be overwhelmed by debt include
- Losing property, such as vehicle repossession or home foreclosure
- Being sued for the collection of debt(s)
- Losing legal privileges, such as the loss of a driver’s license because of having an accident without insurance coverage
- Being constantly harassed by bill collectors at home or at work
- Paying all of your debts on time but having to charge necessities, or having to borrow to pay for necessities such as groceries, utility bills, or rent
- Having your utilities disconnected
- Having to go to check loan stores to make ends meet
- Having to resort to pawn broker loans to make ends meet
- Having to constantly juggle the bills.
Almost nothing can prevent a person from exercising his or her ability to file for bankruptcy protection. But if you need to file bankruptcy, it is often better to file bankruptcy sooner rather than later. Filing sooner usually will allow you and your lawyer the time needed to better plan your bankruptcy and protect your property or your wages. This can allow you to make better use of the fresh start afforded by bankruptcy protection.
Being sued or having a judgment entered against you does not stop you from exercising your ability to file for bankruptcy. It is not too late to file for bankruptcy if your wages are being garnished, if your bank account is being attached, or if you have been either liened or levied by the IRS.
A creditor cannot make you bargain away your ability to file for bankruptcy in a loan agreement, or as a prerequisite for lending you money or in exchange for goods.
There are four types of bankruptcies but the two most common are Chapter 7 bankruptcy and Chapter 13 bankruptcy.
Chapter 7 bankruptcy is the most commonly filed. In Chapter 7, an individual is asking the court to grant him or her a discharge of his or her debts today. In this type of bankruptcy the court will appoint a trustee whose job it is to liquidate all property that is not exempt (or is in excess of what he or she may keep under law), and use the money raised to pay creditors. Generally, those who file Chapter 7 keep all of their property except property which is very valuable or which is subject to a lien that they cannot get rid of under law or cannot afford to pay. Chapter 7 is sometimes referred to as income protection, because by giving up any non-exempt property today, you are protecting your future earnings from your creditors.
The next most commonly-filed bankruptcy is Chapter 13. This is a type of “reorganization” used by individuals to keep their property. Under Chapter 13, an individual repays at least a small portion of his or her debt over a period of time, usually between three to five years. Chapter 13 often allows an individual to reduce the amount of debt he or she must pay back to creditors and to reduce the monthly payment that is required to repay the debt. Chapter 13 can also be used to cure defaults, so that such debts as home mortgage arrearages and car lease arrearages can be made “current.” Chapter 13 can also be used to reduce the monthly payment required to pay off liens on property, such as vehicle loans. Some debts which cannot be discharged in Chapter 7 bankruptcy can be discharged in Chapter 13. Also some people who have property in excess of what they might be able to keep in Chapter 7 bankruptcy choose Chapter 13 in order to retain their property. Some people refer to Chapter 13 as asset protection, because by giving up some of your future income you are keeping the assets you have today.
The next type of bankruptcy is Chapter 11, which is also known as a reorganization. This type of bankruptcy is used mostly by businesses and a few individuals whose debts are vey large.
Finally, there is Chapter 12 bankruptcy. This type of bankruptcy is reserved for fishermen and family farmers.
The type of bankruptcy an individual should file is an important legal decision, one that should be made in consultation with an experienced bankruptcy attorney.
In order to make the right decision, the type of debt you owe as well as the amount of debt you owe must be considered, along with household earnings, assets owned, and the relief that each type of bankruptcy provides.
Often a great deal of harm has already been done to an individual’s credit even before he or she makes the decision to file bankruptcy.
While it is true that bankruptcy will not “add points” to your credit score, bankruptcy provides a discharge releasing you from debts you may never be able to pay. By being discharged from debts you might never be able to pay, you can then begin rebuilding a good credit score. This is because you will no longer have the unpaid accounts, debts in active collection, and unsatisfied judgments that make it impossible to obtain good credit.
It is true that the fact that a person filed bankruptcy can stay on his or her credit report for ten years, but that does not mean you have to wait ten years before you can obtain credit again. Many times a person can recover financially and rebuild credit much sooner. A secured credit card can almost always be obtained immediately after a bankruptcy is completed. Often times the lenders who issue secured credit cards will turn the same credit cards into unsecured accounts in as little as 18 months after the credit card is issued. Many persons who have filed bankruptcy have obtained an FHA- guaranteed home mortgage and purchased a home in as little as two years after they filed bankruptcy. Many persons who have filed bankruptcy have obtained loans for automobiles in even less time.
Sometimes a person may enter into a negotiated debt settlement plan under the belief that it will less injurious to their credit than bankruptcy would be. But because a negotiated debt settlement plan does not provide a discharge of indebtedness, it could actually be more difficult to obtain credit after attempting or completing a negotiated debt settlement plan.
When a person files for bankruptcy protection, he or she does so individually. Bankruptcy does not make a spouse or other person(s) responsible for paying your debts. The only other person who is responsible for paying your debts is the co-signer on an account. The co-signer is responsible to repay the account if you don’t, because he or she already agreed to repay the account by co-signing with you. Bankruptcy does not make a co-signer on an account any more responsible to pay the account than the co-signer already is. Many times a person who files for bankruptcy will continue to repay the co-signed account, thus protecting the co-signer from any harm.
Many married couples file bankruptcy together; however, if you are married, your spouse is not required to file bankruptcy with you. You do not need your spouse’s permission to file bankruptcy individually.
The simplest way to get started is to contact our office and make an appointment to meet with an attorney to discuss your financial situation. Please bring the following information with you to the appointment:
- Proof of current income
- A copy of your most recent federal tax return filed
- Your most recent statement from each creditor, or a list of your debts, or a credit report
- Any papers from a court you recently received
- Any current divorce or child support orders.