Bankruptcy Q&A

1. When does it make sense to consider filing a bankruptcy?

While one should generally consider bankruptcy a last resort, it is a far more common and routine procedure than many people realize. Last year alone, over 2 million Americans filed personal bankruptcy. In the past 5 years, some 9 million Americans just like you have exercised their rights under the federal bankruptcy law to get a fresh start.

Each person's case is different, and you should discuss your circumstances with a qualified bankruptcy attorney. From a practical point of view, however, a person might want to consider bankruptcy when their debts are so great as to exceed their ability to make even reasonable payments. Essentially, when you have no reasonable hope of repaying the debt. Another reason to consider bankruptcy is if creditors have lost patience to the point of seriously threatening or actually taking legal action which could result in garnishment of your paycheck, foreclosure of your house, repossession of your vehicle, or some other harm.

2. What sort of debts can I discharge in bankruptcy? Are there any I cannot discharge?

Generally, all debts are dischargeable (or may be cancelled) in bankruptcy except for what are known as Apriority debts." Priority debts include items such as tax debts, student loans, child support and alimony obligations, and fees and fines owed to a government agency. There are some rare exceptions, however, which allow some priority debts to be discharged.

Non priority debts of all kinds (including credit cards, medical bills, utility bills, personal loans, foreclosures, repossessions and even most court judgments) are almost always canceled, unless a creditor brings an objection that the person filing is guilty of some type of fraud or wrongdoing related to the debt.

You should ask your bankruptcy attorney for advice regarding your debts.

3. Is there more than one type of bankruptcy? How do I know which makes sense for me?

The federal bankruptcy code provides many options for those seeking relief from their debts. The two main options for private individuals seeking discharge of their personal debts are Chapter 7 and Chapter 13.

Chapter 7 is typically a four month process in which all of your dischargeable debts are cancelled and you are given a fresh start. Under Chapter 7, the Court will review your assets. If you have a lot of equity in your assets, the Court may sell them to obtain money to distribute to your creditors. However, generally a person filing Chapter 7 keeps all of their assets and discharges their debts. To be eligible for Chapter 7, you must present a monthly budget to the court which demonstrates you have no money at the end of a month to pay your debts after paying your basic family living expenses.

Chapter 13 is basically a partial repayment bankruptcy in which a person agrees to a payment plan lasting 3 to 5 years, with the Court disbursing payments to your creditors through a Court Trustee. At the end of this payment plan, the balances still owed to creditors on all dischargeable debts are cancelled, giving the person a fresh start. There is no possibility of the court's selling your assets in a Chapter 13 bankruptcy.

There are certainly other advantages and disadvantages to these various bankruptcy options. To find out which bankruptcy makes sense for you and exactly how that type of bankruptcy would affect you, you should contact us to discuss your specific financial condition.

4. Can I choose which debts I list in my bankruptcy? What if I want to honor certain debts?

A person filing bankruptcy is under a legal duty to disclose and list in their bankruptcy paperwork all debts owed by them, whether secured or unsecured, whether dischargeable or not, and whether owed to a bank, business, friend, or relative. There are no exceptions. A person cannot just file a "credit card bankruptcy" or a "medical bill bankruptcy" and list only those creditors.

However, if a person wants to honor a particular debt, such as a home loan or car loan in order to keep the asset, there is a procedure known as "reaffirmation" in which the debt can be honored and the relationship between you and the creditor can be maintained "business as usual," even though you have filed bankruptcy and listed them as one of your creditors. You should discuss the possibility and procedure of reaffirming a debt with your bankruptcy attorney.

5. Will I lose my home (or car, or 401K, or other asset) if I file bankruptcy?

In a Chapter 13 bankruptcy there is no sale of your assets and, therefore, no risk to a person's assets. In a Chapter 7 bankruptcy, the Court can and will review a person's assets and their value to make a determination whether or not to take and sell any such property in order to raise funds to help creditors recover some of their loss from the discharged debts. All assets are, in theory, at risk in a Chapter 7 case.

However, there are legitimate ways to protect an asset from being sold by the Court. In the first instance, the Court is only interested in assets with equity. If you owe a secured debt in which the asset (such as your home or car) is pledged as collateral and the debt is as much or more as the asset is worth, the Court will not be interested in taking that asset. Documenting the value of your assets, therefore, is very important.

Even if a person has significant equity in an asset or owns it free and clear, an asset may be protected if its value is less than the exemptions available. An exemption is a provision of law that basically says you are entitled to keep a certain amount and certain types of things up to a certain value. Whether the available exemptions are enough to protect your assets from any risk of sale, is something you should discuss in detail with your bankruptcy attorney.

Most people who lose assets in a bankruptcy do so only after they have been warned a particular asset is at risk and they choose to file anyway.

6. How long does a bankruptcy take?

In a Chapter 7 case, a person's debts are discharged and their case is closed generally 90 120 days after their bankruptcy is filed with the Court. There are occasional exceptions to this rule. In a Chapter 13 case, a person's payment plan usually lasts between 3 and 5 years, depending on the specific plan confirmed by the Court. A bankruptcy case, however, does not begin until final signed bankruptcy paperwork is filed with the Court by your attorney.

7. How do I stop creditors from harassing me?

The only certain way to officially end contact with creditors, or to put an end to any collection activity by them (including lawsuits, repossessions, and foreclosures), is to actually file your bankruptcy. As soon as your payment plan is filed, each creditor will receive an official notice by mail from the Court advising them you have filed bankruptcy and ordering them to cease all collection activity and contact with you.

8. If I am behind on my mortgage payments, will bankruptcy prevent a foreclosure?

Filing any type of bankruptcy immediately stops collection activity, including foreclosures. However, it is very difficult to reaffirm a delinquent debt in a Chapter 7 case, unless you have the funds to pay the entire arrearage off in a lump sum. If you file a Chapter 13 bankruptcy, on the other hand, the arrearage can be caught up over the life of the payment plan, giving you between 3 to 5 years to bring the mortgage current and in good standing.

It is important to remember though that any foreclosure is not delayed or prevented until you actually file the bankruptcy papers with the Court, which typically requires completion of all your paperwork, payment of your full attorney fee and Court Filing Fee, and signing of your final bankruptcy paperwork (a process which may take several weeks to occur). There is a "quick file" process which you may discuss with your attorney, but this also involves an additional expense.

9. Will I have to go to court?

Most bankruptcy cases only require you to appear at one event known as the "Trustee Meeting" (also referred to sometimes as "Meeting of Creditors" or "Section 341 Meeting"). This is not an actual court appearance and the person (called a "trustee") who conducts the meeting is an attorney who works for the Court. Most people who file bankruptcy never appear before the bankruptcy judge. The Trustee Meeting usually occurs 30 40 days after the filing of your bankruptcy and you will receive advance notice of the date.

Other appearances before the trustee or before the bankruptcy judge are required only in special circumstances, such as when a person's financial situation is especially complicated, if a creditor has alleged some type of fraud, or the creditor disputes whether a debt is cancellable in bankruptcy. We will do our best to warn you if there are any potential issues in your case which would require additional appearances. Of course, it is important to be as honest and thorough as possible in the information you provide us so we can anticipate any special problems.

10. What if I own a business and want to file bankruptcy on behalf of the business?

There are special rules and options available for businesses and farmers who file bankruptcy. A lot depends on what type of legal entity your business is (corporation, partnership, or other) and whether you intend to continue operating the business or not. It is best to discuss business bankruptcy options on a case by case basis.

11. Is it expensive to file bankruptcy? How much does it cost?

Our flat rate attorney fee for a typical Chapter 7 case starts at $1,000. For Chapter 13 cases the typical flat rate is $1,500. Each case is unique and special circumstances may justify a higher fee. Your lawyer will quote you a specific fee before you decide to hire our firm. In addition, to the attorney fee, you will need to pay a filing fee to the court when your bankruptcy begins. In the state of Missouri, the Chapter 7 filing fee is $299 and the Chapter 13 filing fee is $274.

There are additional fees for other special services, such as adding a creditor to your bankruptcy after your petition has already been filed or litigating any special matters before the bankruptcy judge. Again, we will do our best to warn you about any such potential expenses. Our firm is more than happy to accept payments over time from bankruptcy clients, however, we do insist that the attorney fee and filing fee be paid in full to our office prior to the actual filing of your bankruptcy papers with the Court.

Certainly these fees may seem high to someone in difficult financial circumstances, but when you compare these fees to the amount of debt you can cancel in a typical bankruptcy, they are more than reasonable.

12. What will happen to my ability to get credit if I file a bankruptcy?

A bankruptcy filing is generally noted on your credit report for 10 years. While this used to mean that a person filing bankruptcy would not be able to obtain credit for some time, that is not necessarily true today.

The number of Bankruptcy cases continue to rise each year in the United States. As a result, the credit industry as a whole has changed its attitude somewhat toward those who have filed bankruptcy. Nowadays, many creditors will specifically target those who have filed bankruptcy with offers of credit very shortly after the case is completed. Some creditors view those who have filed bankruptcy as an exceptionally good risk as they are now mostly debt free and unable to re-file bankruptcy for many years. In many respects, it is actually easier to obtain credit after filing bankruptcy.

Of course, each creditor is different and how bankruptcy is viewed by them can vary widely.

13. How do I get started?

The first step is to contact our office and make an appointment with an attorney for a bankruptcy consultation. There is no charge for this first visit. We simply find that the best way for you to get complete and accurate answers to your questions, and for us to give the best possible legal advice, is a face to face meeting with a lawyer who can learn about the details of your financial situation and outline how the options available under the bankruptcy code might benefit someone in your particular circumstances. After all, everyone's circumstances are different. What makes sense for one person, is not necessarily the right option for another.

If you decide you do want to file a bankruptcy and want to hire our firm to help you, the only thing required at that first meeting in order for you to take home a set of worksheets to begin filling out and for us open a file in the office is an initial deposit of $75, which is applied toward the balance of your attorney fee. If you are not sure whether you want to file a bankruptcy or if you do not want our assistance, there is no further obligation on your part.