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FAQ'S

THE ADVANTAGES OF FILING FOR BANKRUPTCY

1. What is the best advantage of filing for bankruptcy?

Your bankruptcy filing will automatically, without any other further legal actions, stop most creditor actions against you and your property. This includes collection lawsuits, wage garnishments, bank levies, collection calls to your job, foreclosures, and car repossessions. Moreover, you will receive a much needed “breather” to deal with the hordes of creditors chasing after you.

Once you file for bankruptcy the “automatic stay” immediately starts. The stay will stop any repossessions, garnishments, attachments, utility shut-offs, foreclosures, evictions, and other debt collection harassment. The automatic stay will also  provide you with time to sort out your life and to solve and of your financial problems.

However, there are a few exceptions, usually based on prior bankruptcy filings, when the stay may not automatically go into effect or may later stop applying. For example, if you have filed another bankruptcy case that was dismissed within the previous year, the automatic stay may only last for the first 30 days of your bankruptcy case. If you had two prior cases dismissed within the year, the stay may not go into effect when your case is filed. Even when these exceptions apply, some creditor actions may still be stayed. Also, the bankruptcy court can extend or impose the stay if you file a written request (a “motion”) with the court and the court finds that your bankruptcy case has been filed in good faith. It is important that you give your attorney information about all prior bankruptcy cases you may have been involved in so that you  attorney can advise you on what to expect if a new case is filed.

If you file bankruptcy and the automatic stay is in effect,  then a creditor can’t take any further action against you or your property without permission from the bankruptcy court. Sometimes creditors will seek such permission immediately, and sometimes they will never seek permission.

The permission to continue any collection activity is rarely, if ever, granted to any unsecured creditors. It is common for secured creditors to obtain relief from the stay in a Chapter 7 case to continue foreclosure or repossession of their collateral. On the other hand, an automatic stay will almost always continue in effect to protect you in a Chapter 13 bankruptcy case as long as payments are being made on the secured debt.

If the creditor takes action against you despite the automatic stay, then the creditor can be held in violation of the stay and may have to pay you money damages and attorney fees. If necessary, the creditor’s actions against you can be reversed. For example, a foreclosure sale which is held in violation of the automatic stay can be set aside.

2. Will my bankruptcy filing discharge all of my debts?

The major goal of filing for bankruptcy is to obtain a discharge of your debts and credit card bills. The bankruptcy discharge will wipe out your legal obligations to repay many unsecured debts such as credit cards. Bankruptcy is a relatively easy way to permanently end creditor harassment and the hardship, anxiety, and stress associated with high excessive debt.

On the other hand, a creditor’s collateral is not affected by your bankruptcy filing unless you pay off the debts that are secured by the collateral. A bankruptcy discharge does offer the same type of legal protection for these secured debts. After you obtain a discharge, a secured creditor has no right to seek a money judgment or to collect money from you in any way other than by sell the collateral. This means that, after a bankruptcy, the creditor can seize its collateral if you don’t pay but cannot otherwise try to collect the debt. For example, if you do not pay a car loan, the creditor can seize your car and sell it.

3. What other type of legal protection will bankruptcy give to me?

After you file for bankruptcy then your creditors are barred from garnishing your wages or other income. Bankruptcy even stops most agencies from recovering Social Security or other public benefit averments, so long as your receipt of the overpayment was not based on fraud.

Bankruptcy is also a powerful tool to deal with civil judgments that have been filed against you. If a creditor’s judgment has not been filed or docketed in Trenton,  then that creditor does does not have a lien against any of your property. Therefore, this creditor is classified as unsecured and their debt can be discharged in bankruptcy as if no judgment ever existed. However, if the judgment does create a lien on your property, then you may ask the bankruptcy court to remove the lien if it affects exempt property.

Bankruptcy also offers two extra protections for this exempt property. First, bankruptcy can wipe out a lien entirely, while state exemption laws only prevent a creditor from seizing certain property. Without a bankruptcy filing, if your assets increase in the future, a lien may then allow the creditor to seize some of your property. A second extra protection offered by bankruptcy is that, in some states, you may use federal bankruptcy exemption amounts if they provide better protections for you than those offered by your state law. This depends upon whether your state has “opted out” of the federal exemptions.

4. What type of legal protection will bankruptcy provide me with my secured creditors?

Bankruptcy can also be very helpful in dealing with creditors who have taken items of your property as collateral for their loans. Usually, you still have to make payments on your secured debts if you want to keep the collateral. However, bankruptcy does provide some added flexibility in dealing with these debts.

First, in some situations, bankruptcy can stop secured creditors from seizing collateral by “avoiding” (meaning removing or eliminating) the creditor’s lien. This makes the debt unsecured. For example, when you file bankruptcy, you can avoid liens on most household goods if you did not use money the creditor loaned to you to purchase those goods. To the extent that household goods are exempt – and most families’ household goods will be completely exempt-you can request the bankruptcy court to “avoid” this kind of lien, which will eliminate the creditor’s ability to seize that collateral. Some creditors may claim that a lien on certain types of household goods cannot be avoided based on a change in the law made in 2005. It is too early to know for sure but the change may not have any significant effect, and these liens should continue to be avoided. It is important to check with a bankruptcy attorney about any new developments regarding bankruptcy laws and the interpretation of these laws.

Second, the greatest flexibility in dealing with secured creditors is available when a Chapter 13 bankruptcy is filed. For example, if you are six months delinquent on a mortgage, filing a Chapter 13 bankruptcy will stop a threatened foreclosure and allow you to gradually catch up on the back payments, perhaps over as long a period as several years. In some cases a Chapter 13 filing may also allow you to make lower monthly payments by extending the repayment period or lowering the interest rate on the loan.

5. Will bankruptcy prevent my utilities from being turned off?

A bankruptcy filing will not only stop a threatened utility termination, but will also restore terminated utility service, at least for twenty days. To keep a utility service(s) beyond twenty days keep utility service beyond twenty days after the bankruptcy you must provide a security deposit or other security for future payments and keep current on the new utility charges. Some utilities may not take a deposit, but you must offer to provide one. To keep any service, you do not pay bills incurred before the bankruptcy was filed.

6. Will bankruptcy enable me to keep my driver’s license?

A driver’s license can be critical to keep a job or to find a new job. In some states a driver’s license can be taken away because you have not paid a judgment arising from an automobile accident. In that situation, bankruptcy is sometimes the only possible way for you to keep or regain your driver’s license.

A Chapter 7 will not wipe out DMV surcharges. However, a Chapter 13 can wipe out most DMV surcharges. However, a debtor will be required to repay a portion of the DMV surcharges in his Chapter 13 plan. Once a driver files for bankruptcy, in an unpaid surcharge case, then the DMV will reinstate the debtor’s driver’s license within a month or two.

7. Will I lose all of my property if I file for bankruptcy?

Some people believe that a bankruptcy filing results in the loss of most of their property. This belief is wrong. Everyone who files bankruptcy gets to keep some of their possessions. In fact, most people get to keep all of them.

Whether you get to keep all of your possessions depends on a number of factors. These factors include whether you file a Chapter 7 or a Chapter 13 bankruptcy, whether certain debts are secured or unsecured, and how much of your property is exempt.

Generally, you will keep all or almost all your property in a bankruptcy except property that is very valuable or that is subject to a lien you cannot avoid or afford to pay. All of your equity in property is divided into two categories- exempt and non-exempt. Equity equals the value of your property minus what you owe on any debts secured by that property. State law or, in some cases, the federal bankruptcy law will specify which property is exempt. Usually, at least a certain amount of equity in your home, car, clothes, jewelry, appliances, and furniture will be exempt.

In valuing property for the purposes of bankruptcy, the question is not the property’s original cost, but rather what the property could be sold for at the time the bankruptcy is filed. It is often useful to imagine a hypothetical yard sale to try to estimate what the value of particular items will be. It is also important to understand how the concept of equity relates ro exemption laws. If an exemption law protects a $2,500 motor vehicle, this applies to $2,500 of your equity in the car, not to the total value of the car. For example, if you have a $8,000 car with a $5,000 car loan balance, you have only $2,500 in equity. You can thus fully protect the $8,000 car with the $2,500 exemption. You will still have to repay the car loan, but you won’t lose the car.

In a Cchapter 7 case, you are permitted to keep all of your possessions that are exempt. Any property which is not exempt may be sold, with the money distributed to pay your creditors.

If you have significant non·exempt assets, a Chapter 13 bankruptcy may be a good way to keep all of your possessions. In a Chapter 13 bankruptcy, the property you ate allowed to exempt is the same as in a Chapter 7 case. However, you can keep your possessions (unless you choose to sell them) in a Chapter 13 case by paying their non-exempt value over time from future income under a plan approved by the bankruptcy court.

8. How will bankruptcy effect my credit report?

A bankruptcy can remain on your credit history for ten years. For most people this concern alone should not be considered a disadvantage of bankruptcy. If you are seriously delinquent on a number of debts, then this information will already show up on your credit record. A bankruptcy is unlikely to make your credit any worse. In fact, there is some evidence that the bankruptcy will make it easier to obtain future credit, because new creditors will see that old obligations have been discharged and that the new creditor will therefore be first in line for payment from your income. Also, once a discharge is received, many new creditors recognize that you cannot then receive a new Chapter 7 discharge for the next eight years.

If you do nor yet have problems with credit, then the impact of a bankruptcy on your ability to obtain credit is more difficult to evaluate. The research on the effects of bankruptcy on future credit is inconclusive, but it seems fair to say that most credit decisions depend upon the judgment of individual lenders. Most lenders seem to look at a potential customer’s income and income stability more than anything else.

The one area where bankruptcy is very likely to make it more difficult for you is in attempting to obtain a conventional mortgage to purchase a home. Even then, most lenders will not hold the bankruptcy against you if you have reestablished a good credit reputation for a period of two to four years after your discharge.

After bankruptcy, some lenders may demand collateral as security, ask for a cosigner, or want to know why bankruptcy was filed. Other creditors, such as some local retailers, do not check credit reports or inquire about bankruptcy on credit applications at all.

To improve your chance of getting credit after bankruptcy on reasonable terms, you should make sure that the information being reported about your bankruptcy is accurate. While the fact that you filed bankruptcy can be reopened for ten years from the date your case was filed, information about individual debts may be reopened separately under different rules. If your credit report states that a particular debt you listed in your bankruptcy case was discharged in bankruptcy (usually by noting “included in bankruptcy”), this information may stay on your report for seven years. It is very important that this same debt be listed on your report as having a zero balance, meaning that you do not owe anything on the debt. If the creditor does nor update this information and continues to list the debt as having a balance owed, this will have a negative impact on your credit score and make it more difficult to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with the credit reporting agencies if this information is not correct.

9. How will bankruptcy affect my reputation in the community?

Most people find that their reputations do nor suffer any noticeable harm from filing bankruptcy. Bankruptcies are nor generally announced publicly, a1rhough they are a matter of public record. It is unlikely that your friends and neighbors will know that you filed bankruptcy unless you choose to tell them.

However, especially in a small community, where debts are owed to the locals, some difficulties connected with filing bankruptcy may still arise. You should weigh any possible embarrassment and damage to reputation against bankruptcy’s potential advantages. If you believe that this is a problem, you may choose to voluntarily pay selected debts after bankruptcy. Voluntary payment of discharged debts is allowed by the bankruptcy law, but you cannot leave certain creditors out of the bankruptcy process entirely.

10. I feel like a “sleazebag” because I have filed for bankruptcy. Don’t I have a moral obligation to repay my debts?

Most people want to repay their debts and make every effort to do so if payment is possible. If bankruptcy is the right solution to your financial problems, then you should balance these feelings of obligation with other considerations. Remember, that a provision concerning bankruptcy is contained in the United States Constitution. Big corporations like Kmart, TWA, A.H. Robbins, Johns Manville, Macy’s, and Penn Central, and famous people like Toni Braxton, Kim Basinger, Tammy Wynette, and Mickey Rooney, have all chosen to file bankruptcy.

You may find comfort in the fact that the Bible mentions the need for a process which is like bankruptcy. The book of Deuteronomy states:

At the end of every seven years thou shall make a release. And this is the manner of the release: every creditor shall release that which he has lent unto his neighbor and his brother; because the Lord’s release hath been proclaimed. (Deut. 15: 1-2.)

Most importantly, bankruptcy should be considered in relation to the hardships it can avoid. During hard times, bankruptcy may be the only way to provide your family with your family with food, clothing, and shelter. There is no good reason to feel embarrassed about filing for bankruptcy if it is the best solution to your financial disaster.

11. What type of potential types of discrimination will I encounter after I file for bankruptcy?

The bankruptcy law offers you some protection against discrimination by creditors and others. Government agencies, such as housing authorities and licensing departments, cannot deny you benefits because of a previous bankruptcy discharge of your debts to these agencies. Government agencies and private entitled involved in student loan programs cannot discriminate against you based upon a bankruptcy filing.

Employers are also not permitted to discrimination against you for filing bankruptcy. However, some sensitive jobs which involve money or security, your bankruptcy may be considered evidence of financial problems which could be detrimental to your work. Also, the bankruptcy law does not prevent discrimination by others, including private creditors deciding whether to grant new loans.