Frequently asked questions.
What is bankruptcy?
Bankruptcy is the most sophisticated financial planning tool available to consumers. It’s not about cheating your creditors–it’s really about being a responsible person and getting your financial act together so that you can take care of yourself and your family. The bankruptcy laws are mandated by the US Constitution for the purpose of giving people a fresh start and a second chance.
Do I have to disclose all of my assets and all of my debts?
Bankruptcy is a process of full disclosure. You are required to disclose all of your assets and all of your liabilities. You will need to disclose all of your sources of income and other benefits as well as your current monthly expenses. You can’t pick and choose which assets or debts you will disclose.
What Must I do in Order to File Bankruptcy?
Individuals who file bankruptcy must complete a credit counseling session with a court approved credit counseling agency before filing a bankruptcy petition.
Can I Keep My Home and Car if I File Bankruptcy?
Most people are able to keep their homes and cars after filing bankruptcy. In a Chapter 7, you can usually keep a home as long as you don’t have too much equity in it. You will still need to continue making your mortgage payments. In a Chapter 13, you may usually keep your home and car despite the value.
How is a Chapter 13 different from a Chapter 7?
Chapter 7 is the most common type of consumer bankruptcy. It is sometime referred to as “straight bankruptcy” or liquidation.
Chapter 13 is the other option for consumer debtors. Under Chapter 13, the unsecured creditors are repaid over the course of a 3 or 5 year plan.
A Chapter 13 involves several more steps. After the 341 hearing, a plan confirmation hearing is scheduled. In addition to filing a petition, scheduled and statements (just like in a Chapter 7) you have to file a Plan which tells how much you are going to pay into plan on a monthly basis. The Plan also addresses how you will catch up on a mortgage or auto loan arrearage. The Plan will last from 36 to 60 months – and a Chapter 13 can always be converted into a Chapter 7.
Why would I have to file a Chapter 13?
You may have to file a Chapter 13 if any of the following apply to you:
1. You earn more than the median income.
2. You have non-exempt assets that you want to protect.
3. You have an under secured second mortgage and you want to strip off that second mortgage – your house value has decreased and your first mortgage balance is greater than the value – your second mortgage is under secured and can be stripped off or discharged.
4. You have a car loan on a car that is worth less than the loan and you want to cram down the loan balance to be equal with the value of the car.
5. You are behind on your mortgage and/or real property taxes and you want to catch up on the payments.
6. You have want to discharge property settlement provisions that resulted from your divorce.
7. You have large 401k loans that you want to repay.
What is a 341 hearing?
You participate in a 341 hearing for both Chapter 7 and for Chapter 13. After the 341 hearing in a Chapter 7, the Trustee issues a report no assets (beyond those that you have exempted) and your discharge is entered within the next 60 to 90 days. Most Chapter 7’s are completed in 120 days or less.
How did the “new law” change bankruptcy law?
The new law established several new requirements for debtors. Most notably, the new law established median income levels based on family size. The median income levels establish a threshold for determining whether you can file a Chapter 7 or whether you have to file a Chapter 13.
If you make more than the median income for your family size, you must take the means test. Depending on your situation, you can pass (or flunk) the means test and still be able to file a 7 despite your income.
In addition, the new law requires that you take a credit counseling course before you file and a financial management course before your discharge can be granted. The classes can be completed online or by phone.
What is a bankruptcy exemption?
The Bankruptcy exemption allowances are the basis for your fresh start. Many peopled think that if you file bankruptcy, you lose everything. The exemptions allowances prevent you from having to live in a box under the bridge.
An exemption is a monetary (dollar amount) allowance in real and personal property that is exempt from the reach of your creditors. An exemption allowance can relate to the actual value of an asset or it can relate to accumulated equity in an asset.
Here is a list of the more common exemption allowances:
Household goods $11,525
Wild Card $1,150 of any property & up to $10,825 unused homestead
Tools of Trade $2,175
Life Insurance $11,525
401k, IRA $1,171,650 per person.
If you are married and you file jointly, the amounts shown below are doubled: Each spouse is entitled to a full exemption allowance for each category. When you list your property (assets), it is important to identify whether the property is held individually (by either spouse) or jointly. Property that is owned individually can only be exempted by that spouse. Jointly owned property can be exempted by either spouse.
What is the “automatic stay” and when does it go into effect?
The minute that your case is filed the “automatic stay” goes into effect. The “automatic stay” is like an injunction and it prevents your creditors from taking any action of any nature against you including phone calls or garnishments – everything stops. Any creditor that violates the automatic stay is subject to a contempt sanction by the bankruptcy court.
What does the trustee do?
When your case is filed, a Trustee is appointed to oversee your case. The Trustee stands in the shoes of your creditors and makes sure that all of your paperwork is accurate. The Trustee is entitled to seize any non-exempt assets for the benefit of your creditors.
The Trustee also presides over your “341 Hearing” or the first meeting of creditors. In most cases, this is the only hearing that you will have to attend. It is scheduled within 20 to 40 days after your case is filed. Although you are sworn under oath and your testimony is recorded, the hearing is informal. The Trustee asks you a standard list of questions and it usually takes about 5 to 10 minutes.
How does Bankruptcy affect my spouse?
If you have personal debt that is solely in your name that has become delinquent, and your spouse does not, there is no reason for your spouse to file bankruptcy with you. By filing bankruptcy, a notation is added to your credit report, not only where the accounts are listed but also in a judicial section. Therefore, your spouse would end up with a negative mark on their credit report even if they did not have debt that was being discharged.
How often can you file for bankruptcy?
You can file a Chapter 7 every 8 years and a Chapter 13 every 6 years. You can file a Chapter 13 anytime after you file a Chapter 7 but it must be at least 4 years in order for you to qualify for a discharge.
How Much does it Cost to File Bankruptcy?
For a Chapter 7, the court filing fee is $306.00. For a Chapter 13, the court filing fee is $274. A Chapter 11 court filing fee is $1,039. If you hire an attorney to represent you in a bankruptcy, you will also need to pay an attorney fee. At Barrett Law, we have filed Bankruptcies for as little as $500.00.
Lansing and Mid-Michigan area residents contemplating bankruptcy can contact the Michigan office of Barrett Law, PLLC for a free initial consultation at 517-694-7920.
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