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Bankruptcy Introduction
Welcome to our LAW OFFICES!
We strive to provide all of our clients with high quality Bankruptcy legal representation at reasonable rates. We understand filing for Bankruptcy is an important decision, and we take the time to ensure it is done properly and assist, advise and guide you at every step in the process.
Whether you need relief from garnishment, credit card debt, medical bills or the constant harassment from your creditors, Bankruptcy may be an option to help you get a fresh financial start.
Over the years the U.S. bankruptcy code has seen many changes. The most extensive amendments were made through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or BAPCPA.
Part of those changes included a mandatory credit counseling briefing prior to filing bankruptcy and a debtor education course before receiving a discharge for all bankruptcy filers. This counseling process can be completed over the phone, or online, and actually provides valuable financial information that can help consumers understand how to avoid financial difficultly in the future.
Your attorney can help you examine your current financial circumstances and evaluate whether filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy may give you a fresh financial start.
Bankruptcy Chapter 7 vs Chapter 13
When it comes to filing for bankruptcy, you face several options. Choosing the appropriate filing for your situation can seem confusing, as it often depends on the type of debt, income, and property that you have. While we’ll go over a few of the choices here, your attorney can help you navigate your bankruptcy, and provide counsel on the specifics of your case. After all, Bankruptcy does not work for everybody, but more importantly, it needs to work for YOU.
There are two major types of consumer bankruptcy to consider: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy is typically geared towards consumers with low income and lots of unsecured debt, while Chapter 13 bankruptcy may be better for those with regular income and certain types of property.
Let’s discuss these two options in a little more detail, starting with Chapter 7.
In Chapter 7 bankruptcy, debtors can have most of their unsecured debts discharged.
Unsecured debts are those that aren’t attached to physical collateral. For example, unsecured debt includes credit cards, and medical bills.
When a consumer’s debts are discharged, they don’t have to pay them, they can no longer be reported as delinquent on credit reports, and anyone who tries to collect them can face bankruptcy court sanctions.
In Chapter 7 bankruptcy, property can be liquidated to pay some debts, but there are exemptions that cover most or all of the property that most bankruptcy petitioners own.
Most secured debts, like car loans and mortgages, must be paid, or the property is surrendered.
There are several options for managing these secured debts – like car loans and mortgages:
Reaffirmation, in which the debtor agrees to keep paying off debts
Redemption, in which the debtor pays a flat amount and in turn keeps the property.
And surrender, in which the debtor returns the property, and the debt becomes unsecured and often dischargeable.
Most people who file for Chapter 7 bankruptcy have a lot of unsecured debt and have little property of value.
Chapter 13 bankruptcy, on the other hand, is often filed by consumers who have more available income. Chapter 13 gives the debtor time to catch up on past-due amounts, while maintaining current bills. Current bill payments are based on the debtor’s current income.
Chapter 13 bankruptcy prioritizes secured debts, and can help save homes, automobiles, and other secured property.
Unsecured debts like credit card debt and medical bills can be paid after secured debts. If a debtor pays off secured debts according to the Chapter 13 agreement, then most remaining unsecured debts can be discharged.
Chapter 7 and Chapter 13 bankruptcy meet different needs for different consumers.
To choose the right bankruptcy filing, consumers need to take a close look at their debts, income and property.
A local bankruptcy attorney can help, by reviewing your specific financial circumstances, and advising you about which bankruptcy protection might be best for you.
Credit Counseling
Part of the Bankruptcy process is having you complete both a Credit Counseling and Debtor Education course. These are available by phone or online for your convenience.
In fact, if you have decided to file bankruptcy, the FIRST STEP is to obtain a credit counseling briefing from a certified credit counseling agency.
The credit counseling briefing is basically a primer or introduction on basic financial management, budget analysis and debt management strategies. This course is based on YOUR financial situation, which allows you to learn the proper way to personally manage your finances.
In addition to hitting on these points, the credit counseling briefing addresses alternatives to bankruptcy.
Many people who go through the bankruptcy process find that this education process can be very beneficial, and helps consumers avoid falling into financial trouble again.
You should know that your bankruptcy petition may be dismissed if you fail to complete a certified credit counseling briefing. In other words, this is both a mandatory as well as a beneficial part of the bankruptcy process.
Under the new bankruptcy law, you must also complete a debtor education course after bankruptcy, but before being able to receive your discharge. This applies, regardless of whether you’re filing bankruptcy under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code.
As its name implies, the debtor education course serves as an educational tool for you to plan your financial future and learn some important lessons— like establishing a healthy relationship with credit.
You can quickly and easily complete these courses and obtain a credit briefing from a reputable company which is licensed to administer the courses. In fact, you can receive the counseling on the internet, or over the phone and begin the process immediately.
If you have any questions about the credit counseling briefing, be sure to get in touch with your bankruptcy lawyer, who can provide even more insight and tips on how to satisfy this requirement.
Bankruptcy Process
People generally file for Chapter 7 bankruptcy to discharge credit card debts and other unsecured debts. So what happens when one files for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code?
First thing you need to remember is to complete a Credit Counseling briefing – this can be done online or by phone and your bankruptcy attorney can help you get started.
After obtaining your credit counseling certificate, you’ll need to provide your bankruptcy lawyer with all information on your assets, income, expenses and debts. Your bankruptcy lawyer will use this information to prepare your Chapter 7 bankruptcy petition, which will be filed in a local bankruptcy court.
Upon your bankruptcy filing, the court will appoint a bankruptcy trustee who will enter an order for an automatic stay, which essentially stops all collection actions against you during your Chapter 7 bankruptcy case.
Six weeks after filing, you’ll need to attend a meeting of creditors and testify to the accuracy of the information in your bankruptcy petition. Generally, Chapter 7 bankruptcy cases are very quick. Many people receive their discharge six months after filing Chapter 7 bankruptcy.
The process for Chapter 13 is similar to chapter 7, although people generally file for Chapter 13 bankruptcy to help stop foreclosure or vehicle repossession. Chapter 13 of the U.S. Bankruptcy Code often allows people to keep these cherished items via the establishment of a repayment plan of past debts.
Like Chapter 7, you will be required to obtain a certified credit counseling certificate prior to filing. Once you’ve received your credit counseling briefing, you will work with your bankruptcy lawyer to prepare your information in order to file Chapter 13 bankruptcy.
Also like a Chapter 7 bankruptcy case, you will need to attend a meeting of creditors after filing Chapter 13 bankruptcy. Throughout your Chapter 13 bankruptcy case, your bankruptcy lawyer will work with you in developing a 3-5 year repayment plan where you can catch up on your past-due debts and still remain current on your monthly payments.
Discharged Debt
Debt that has been declared in a bankruptcy is called “Discharged Debt.”
When debt has been discharged in a bankruptcy court, NOBODY can try to collect this debt again. This includes the original creditor, debt buyers and collection agencies.
Discharged debt cannot appear on your credit as anything other than a zero balance.
Sometimes collection agencies report a discharged debt to the credit bureaus, hoping you will pay off the debt rather than take the time to correct the information with the credit bureaus. The debt will appear on your credit report as if it had not been discharged by a court of law.
When discharged debt re-appears on your credit reports, it affects your credit score and can result in higher interest rates or credit denials.
Sometimes debt collectors buy discharged debt, knowing they can’t collect on it, but hoping you don’t know that. These debt collectors may tell you that the discharge doesn’t apply to them because they are not the original creditor. Don’t be fooled.
Creditors who attempt to collect a discharged debt are violating a court order. The court can stop them, and they may even have to pay damages.
So, remember:
- Discharged debt does not need not to be paid – it was discharged in a court of law
- Discharged debt should not appear on your credit report except as a zero balance
- Monitor your credit report and be proactive
Debt that has been discharged in a bankruptcy is no longer valid and by law can not be collected by anyone.