Bankruptcy FAQs

Must I employ an attorney?

While it is not necessary to hire an attorney to file for Bankruptcy, in most cases the benefits of hiring an attorney outweigh representing yourself.  Keep in mind that the Bankruptcy code is very complex and filing a Bankruptcy petition requires a thorough knowledge of the Bankruptcy code and other laws.  An experienced attorney can help you correctly list all of your obligations and help you keep as much property as possible and eliminate as much debt as possible. If you do not file the paperwork correctly or use an unlicensed, non-attorney, the problems you may face could exceed the cost of an experienced attorney.

Do I have to list all debts and assets?

Yes.  If you knowingly and fraudulently conceal an asset from the court or fail to list all debts, you have committed a felony and can be fined up to $5,000, imprisoned for up to five years, or both. In addition, the court can deny you your discharge, or dismiss or convert your Bankruptcy proceeding.

Can I keep my home and automobile?

If the item you wish to keep does not secure a debt, you will usually get to keep it.  If the items secures a debt, then if you intend to keep the property, you must indicate your intention to: (1) reaffirm your debts and continue making all of your payments on those debts; or (2) redeem the property by paying the fair market value for it, in which case you will receive a discharge of debt owed over the fair market value of the item. You have 45 days after your Statement of Intention is filed to surrender or keep your property as you indicated in your Statement of Intentions.

In a Chapters 7 Bankruptcy, the debtor in many cases will be able to retain their home and automobile.  A debt that you wish to keep (reaffirm) must usually be kept current.  Utilities is a good example.  Generally, the only way a debtor would lose the home or automobile would be when the debtor is behind in his or her obligation and cannot reach a payment agreement with the creditor, or the home or automobile has equity in excess of the exempt amount.  If either of these two conditions exist, the debtor should consider filing a chapter 13 petition, which permits the development of a plan for repaying creditors without necessarily liquidating assets.  Although each situation is different, assuming the debtor has little or no equity and is able to continue to pay the mortgage or automobile payment, both should be safe.  If equity exists in the debtor’s home or auto, Chapter 13 Bankruptcy can protect that.

If I am married must both of us file?

It is not required that both spouses file Bankruptcy if one spouse decides to file.  However, the non-filling spouse will still be liable on joint debts of the parties.  It follows then that if the majority of debts are in both spouses names, both spouses should file Bankruptcy or the benefits of Bankruptcy are lost.  However, if the majority of the debts are in one spouse’s name only, it is not necessary for both spouses to file, as the debts would be extinguished and the other spouse is not liable for them.

What is the advantage to purchased forms over free forms?

The advantage to purchasing Bankruptcy forms as opposed to utilizing free forms include the certainty of obtaining exactly the right forms needed for the debtor’s particular situation.  In addition, by purchasing Bankruptcy forms, often the debtor will receive detailed instructions on the appropriate use of the forms.  This will prevent unnecessary delay in filing the case and increases one’s chances of having the Bankruptcy approved by the trustee.

How are creditors notified that I have filed?

After a debtor has filed for Bankruptcy protection, creditors are notified of the filing and the existence of the automatic stay by the Bankruptcy court.  Creditors will be given information regarding the 341 meeting, as well as deadlines for filing proofs of claim. The hearing is not presided over by a judge but an administrator. Creditors will be allowed to ask a few questions but more detailed interrogations are not permitted and must be reserved for discovery or a hearing presided over by a judge.

Will creditors stop calling after I file?

After we are retained we will send letters to harassing creditors to cease dunning calls immediately.  And once a creditor or bill collector becomes aware of a filing for Bankruptcy protection, it must immediately stop all collection efforts. After you file the Bankruptcy petition  the court mails a notice to all the creditors listed in your Bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the Bankruptcy petition.

When the creditor does call give them  the “docket number” for your case.  If they have any other questions tell them to “call the  attorney”.   In some cases, you or your attorney should contact the creditor immediately upon filing the Bankruptcy petition, especially if a law suit is pending. If a creditor continues to use collection tactics once informed of the Bankruptcy they may be liable for court sanctions and attorney fees for this conduct.

After filing for Bankruptcy, the automatic stay will prevent creditors from calling and harassing the debtor in any way.  In fact, should a creditor continue to attempt to contact the debtor during the automatic stay, that creditor could be held liable for damages.  Federal Bankruptcy laws provide a private cause of action for an individual injured by any willful violation of the automatic stay. The injured individual is entitled to recover actual damages, including costs and attorney’s fees.  Punitive damages are awarded when the actions taken by the creditor are particularly egregious and there is a showing of actual damage.

Are there alternatives to Bankruptcy?

Yes, there are alternatives to filing Bankruptcy.  Anyone considering filing Bankruptcy should first evaluate all of the potential alternatives, and then make an informed decision regarding whether Bankruptcy is the best choice.  It should be stressed that this is a personal decision for each individual.  There is no one answer that is right for everyone.  Only by carefully exploring all of the alternatives may a person truly know whether Bankruptcy is the best solution to their debt problems.

Prior to making a decision to file Bankruptcy, each individual should first attempt to contact his or her creditors and determine whether it is possible to obtain their cooperation in working out a different payment schedule.  Most people would be surprised to learn that creditors often are willing to make reasonable modifications to assist the debtor in repayment.  Communication and honesty are the key words here.  In exploring this option, the creditor should be honest and forthright with the creditor regarding one’s financial situation.

The debtor should also take a close look at his or her assets.  If any have a resale value, consider whether a sale of those assets and the application of the proceeds of the sale to one’s debt may reduce the debt to a more manageable level.  Often, after the sale of one or more personal assets, debt is reduced to a level, which makes Bankruptcy a less attractive option.

Another option to explore, which may not be available to every debtor, is a consolidation loan.  It may be possible for some debtors to obtain a consolidation loan to repay one’s debt, which very often will result in lower overall payments.

Another option to examine is Consumer Credit Counseling Service.  CCC is a nationwide nonprofit organization that attempts to work with both the debtor and his or her creditors to devise a more manageable repayment plan. This service very often results in revised payment plans, which are acceptable to both the debtor and the creditor, thereby eliminating the need to file Bankruptcy.

Will I be allowed to keep my credit cards?

Federal Bankruptcy Law requires you to list all of your creditors, not just the creditors whose debt you would like to discharge.  Some creditors may allow you to keep their credit cards and continue paying on the debts, but it depends on the creditor after the creditor has been notified of the Bankruptcy.  It depends on what your credit card balance is at the time of the Bankruptcy, what the company issuing the credit card is willing to do, and how well you convince them you can, and will, pay present and future credit card debt.  If you want to hang on to some credit cards, you can try during the Bankruptcy proceeding to negotiate what is known as “re-affirming the debt” with the credit card holder, meaning you convince them you’ll pay back what you owe.  Keep in mind however, that often it is credit card debt, which caused a debtor to choose Bankruptcy in the first place.  The debtor should attempt to reform habits such as poor use of credit cards, rather than continuing to make the same mistakes.  Bankruptcy is designed to provide the debtor with a fresh start.  Thus, the debtor should make the most of that opportunity, rather than repeating the same patterns, which brought them to this point in the first place.

Can I borrow money after Bankruptcy?

Yes.  After Bankruptcy it is possible to borrow money for virtually any purpose.  However, one should understand completely that this does not mean that the same terms that would be available to someone with perfect credit will be available to someone who has filed for Bankruptcy.  Generally speaking, borrowing money after Bankruptcy will involve higher interest rates for the borrower.  In addition, banks may require additional security or a larger down payment.  What is important to remember is that in the crucial months following a Bankruptcy, the debtor can take steps to insure that his or her credit worthiness is improved by timely making payments and rebuilding one’s credit worthiness.

Where do I file Bankruptcy?

The proper place to file for Bankruptcy is the local Bankruptcy court where the debtor resides or owns property.

Will I be required to attend a court hearing?

Generally, every debtor will be required to attend at least one court hearing, often referred to as the 341 hearing.   This hearing gets its name from the section of the Bankruptcy Code that authorizes such a hearing.  It is also sometimes referred to as the “First Meeting of Creditors”.  Creditors are notified of this hearing so that they may attend and question the debtor regarding assets and any other relevant matter.  At this hearing, the trustee will review the petition of the debtor and also ask questions concerning any matter that may affect the debtor’s right to discharge. This review is used to understand the debtor’s circumstances and to assist in the efficient administration of the case.  The trustee will also ask questions of the debtor to ensure that he or she understands both the positive and negative aspects Bankruptcy.  Should the debtor not attend this hearing, the trustee has the authority to dismiss the case.

What are the Sandoval Law Firms fees to file Bankruptcy?

The initial down payment on the Attorney’s Retainer is $350.  During this planning stage we will evaluate your circumstances and consider various options. We will also write to harassing creditors to demanding they cease dunning phone calls pending this procedure, and where possible negotiate reaffirmation agreements.

After the evaluation stage, and during the next stage where we gather from you, and other available resources, the information necessary to prepare your Bankruptcy Petition.  The fee at this next stage is $350.00 for a single filer, or $400.00 for husband and wife joint filers. These fees  include the preparation of the Bankruptcy Petition, and schedules, and representation at the creditor’s meeting, and if necessary negotiation of reaffirmation agreements.  The court fees are $306.00 for the filing fee, which does not have to be paid until we are ready to file.  However remember all fees must be paid before we finally file your Bankruptcy Petition.  We will not be responsible for filing your petition until all filing fees and attorney fees are paid in full.

What is the first step to start the Bankruptcy process:

The process starts with a first consultation. Then you have to go to a one time, one hours credit counseling class.  Mean while you and I must prepare your petition.  It will be necessary to file:  (1) a list of ALL your creditors, (2) a list of ALL your property, both exempt and non-exempt, and (3) a detailed list of your monthly income and living expenses.

Does the spouse of a married person also have to file Bankruptcy?

No. In some cases where only one spouse has debts, or one spouse has debts that are not dis-chargeable then it might be advisable to have only one spouse file. If the spouses have joint debts, the fact that one spouse discharged the debt may show on the other spouses credit report.  You should discuss your situation with the attorney.

How long before the Bankruptcy is complete?

The length of time needed to complete a Bankruptcy depends upon the type of case filed.  In a typical Chapter 7 Bankruptcy case, a discharge will granted after the time period allowed for challenging the discharge has elapse, usually sixty days after the first date set for the 341 meeting.  This usually means a discharge is granted about four months after the petition for Bankruptcy is filed.  In a Chapter 13 Bankruptcy case, because the Bankruptcy plan is usually anywhere from three to five years, the discharge is granted after the plan has been completed

What is a discharge?

Discharge of debts is the goal of the debtor in a Bankruptcy filing.  A discharge means that a debt has become unenforceable and the debtor is released from all liability regarding that debt.  It should be noted however, that certain types of debts are not dis-chargeable, even though they are listed in the Bankruptcy petition.  They include:

  • student loans
  • taxes owed to the government
  • alimony and child support
  • debts obtained by fraud, false pretenses, a false representation or a false written statement regarding the debtor’s financial condition
  • debts for embezzlement, larceny or fraud while acting in a position of trust
  • debts arising from the debtor’s driving while under the influence of alcohol or drugs

What does exempt property mean and what property is exempt?

Exempt property is that property of the debtor that does not become part of the Bankruptcy estate.  When a debtor files for Bankruptcy protection, certain assets of the debtor become part of the Bankruptcy estate and are disposed of by the trustee and the proceeds are used to pay off the debtor’s unsecured creditors.  Property that is retained by the debtor (exempt property) include:

  • The debtor’s aggregate interest, not to exceed $15,000 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.
  • The debtor’s interest, not to exceed $2,400 in value, in one motor vehicle.
  • The debtor’s interest, not to exceed $400 in value in any particular item or $8,000 in aggregate value, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.
  • The debtor’s aggregate interest, not to exceed $1,000 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.
  • The debtor’s aggregate interest in any property, not to exceed in value $800 plus up to $7,500 of any unused amount of the exemption provided under paragraph (1) of this subsection.
  • The debtor’s aggregate interest, not to exceed $1,500 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.
  • Any un-matured life insurance contract owned by the debtor, other than a credit life insurance contract.
  • The debtor’s aggregate interest, not to exceed in value $8,000 less any amount of property of the estate transferred in the manner specified in section 542(d) of this title, in any accrued dividend or interest under, or loan value of, any un-matured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.
  • Professionally prescribed health aids for the debtor or a dependent of the debtor.
  • The debtor’s right to receive -
    • a social security benefit, unemployment compensation, or a local public assistance benefit;
    • a veterans’ benefit;
    • a disability, illness, or unemployment benefit;
    • alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
    • a payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless -
      • such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor’s rights under such plan or contract arose;
      • such payment is on account of age or length of service; and
      • such plan or contract does not qualify under section 401(a), 403(a), 403(b), or 408 of the Internal Revenue Code of 1986.
  • The debtor’s right to receive, or property that is traceable to -
    • an award under a crime victim’s reparation law;
    • a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
    • a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual’s death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
    • a payment, not to exceed $15,000, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or
    • a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

Will my employer find out about the Bankruptcy?

Bankruptcy petitions are public records. However, under normal circumstances, unless your employer is a creditor, he or she will not know you filed a Bankruptcy petition. If your employer is a creditor, he or she must be listed as a creditor on the schedules and receive notice of the Bankruptcy proceeding. Also, in some states chapter 13 debtors are required to make payments through wage garnishment and their employer will thus learn about the Bankruptcy when ordered to withhold and remit payments to the trustee.

Can I be fired from my job for filing Bankruptcy?

No, it is against federal law to discriminate against someone for filing Bankruptcy. No private employer may terminate the employment of or discriminate with respect to a person who has filed Bankruptcy.

Will Bankruptcy stop a garnishment or execution?

Filing Bankruptcy does offer protection from garnishment of debtor’s wages and from execution of judgments.  This protection is available immediately upon the filing of the petition for Bankruptcy, through the automatic stay.  The automatic stay prohibits creditors from taking any action against the debtor, such as garnishments, executions or any other type of action designed to collect on a debt.  Any violations of the stay by a creditor will result in severe penalties imposed by the trustee.

Are pension plans and 401(k) plans exempt?

The United States Supreme Court has held that pension plans, 401(k) plans, and other “ERISA-qualified plans” are generally “excluded” from the Bankruptcy estate.  ERISA means the Federal Employee Retirement Income Security Act.  Under this act, pension plans, 401(k) plans, and other “ERISA-qualified plans” are specifically prohibited from being assigned or alienated.  What this means to the debtor is that the plan is excluded from the Bankruptcy estate and remain the property of the debtor.

What happens to my personal property, real property and other assets?

Upon filing Bankruptcy, all of the debtors personal property, real property and other assets, unless specifically exempt, becomes part of the Bankruptcy estate.  This means that the trustee will take control over the property and dispose of it for the benefit of creditors.

What is an unsecured creditor?

An unsecured creditor is one who does not have a security interest in any of the debtor’s property as an assurance that the loan will be repaid.  Examples of this would be credit card debt or a signature loan.  Secured creditors are protected by their security interest in the debtor’s property (called collateral).  If a debtor stops making payments, the secured creditor can take possession of the debtor’s collateral.

Once the exempt property is liquidated and distributed among the unsecured creditors, the remaining unsecured debt is discharged.  However, some types of unsecured debt, including student loans, child support, and taxes, cannot be discharged, even in a Bankruptcy proceeding.

Who deals with my creditors and bill collectors during the Bankruptcy?

Usually, your attorney deals with all creditors.

Can my employer fire me for filing Bankruptcy?

No.  Government units and private employers are prohibited from discriminating against you because you filed a Bankruptcy petition or because you failed to pay a dischargeable debt.

Can I go to jail if I file Bankruptcy or don’t pay my debts?

No. There are no debtor’s prisons in the United States.

What should I do to prepare for filing Bankruptcy?

1. If you intend to file Bankruptcy you should stop using your credit cards. If you borrow money with the specific intent of discharging the debt in Bankruptcy instead of paying it back, the debt is not dischargeable. In addition, three specific circumstances are worth mentioning: (a)  If you incurred new credit of $500 or more for “luxury goods or services” within the 90-day period before your Bankruptcy, (b) or if you obtain a cash advance in the amount of $750 within 70-day period before your Bankruptcy, the debt is presumed to be non-dischargeable; and, (c)debts involving materially false financial statements are nondischargeable under certain circumstances.

2. Don’t transfer your assets to friends, family and business associates to protect the assets from your creditors. The transfer may be considered a fraudulent.  If it is, you may lose both the property and your right to a Bankruptcy discharge.

3. Don’t destroy any business or financial records. You can lose your right to a Bankruptcy discharge as a result.

4. Carefully choose the creditors you pay. Some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away. Your attorney should advise you on what debts should and should not be paid while you prepare to file a Bankruptcy petition.

Can I file a Bankruptcy for my debts, but not include my assets?

No.  You must list all of your creditors and property.  Failure to list a creditor with whom you wish to maintain a credit relationship, as well as failure to list property which was being held by another for you, is a federal felony.

Can I file Bankruptcy to delay a creditor?

Rule 9011 of the Rules of Bankruptcy Procedure requires you or your attorney to certify that your petition is not filed “for any improper purpose, such as to harass or to cause unnecessary delay..” Bankruptcy is intended as a tool for dealing with debts that can not otherwise be paid. You should not file a Bankruptcy petition for the sole reason of delaying a creditor’s actions.

Do I have to disclose all of my assets?

Yes. If you knowingly and fraudulently conceal an asset from the court you have committed a felony and can be fined up to $5,000, imprisoned for up to five years, or both. In addition, the court can deny you your discharge, or dismiss or convert your Bankruptcy proceeding.

What is Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy is a full or partial repayment plan administered by the Bankruptcy court. The debtor submits a plan for approval and, when a plan is approved, makes monthly payments to the Bankruptcy trustee. The trustee makes payments to creditors in accordance with the terms of the plan. The repayment period may be from 3-5 years. At the end of the repayment period, if all payments have been made according to the plan, remaining unsecured, dis-chargeable debt may be discharged.

Who Can File Chapter 13 Bankruptcy?

In one sense, it’s easier to qualify for Chapter 13 Bankruptcy than for Chapter 7 Bankruptcy. There’s no means test for Chapter 13 Bankruptcy, and some debtors who cannot qualify for Chapter 7 Bankruptcy opt to file under Chapter 13 Bankruptcy instead. However, Chapter 13 Bankruptcy requires a regular income that will allow you to create a budget and make predictable and reliable payments to the trustee.

Is Chapter 13 Bankruptcy the Right Option for Me?

A Chapter 13 Bankruptcy can stop mortgage foreclosure and other repossessions.

Chapter 13 Bankruptcy is often a good option for people who are facing short-term financial setbacks, such as a job loss or illness. It also may be a good choice for someone who is suddenly faced with unexpected expenses.

In short, a Chapter 13 repayment plan can silence creditors through an automatic stay and give a person the chance to repay their debts in three to five years after the Bankruptcy filing.

Is Chapter 7 or Chapter 13 Bankruptcy Better?

The answer to this question depends on your specific circumstances. Generally speaking, Chapter 7 Bankruptcy is better for people who have a lot of unsecured debts, like credit card debt and medical bills. If you don’t have much property, your income is low, and most of your debts are unsecured, you might want to consider Chapter 7 Bankruptcy. Chapter 13 Bankruptcy, on the other hand, tends to be a better option for those who have regular income and non-exempt property they’d like to keep. A local Bankruptcy attorney can review your specific financial circumstances and advise you as to which type of Bankruptcy protection might be best for you.