- What is bankruptcy?
- What can bankruptcy do for me?
- What can bankruptcy not do?
- Do I have to be a U.S. citizen to file bankruptcy?
- Where do I file?
- What different types of bankruptcy cases should I consider?
- What must I do before filing bankruptcy?
- What will happen to my home and car if I file bankruptcy?
- Can I own anything after bankruptcy?
- Will bankruptcy wipe out all my debts?
- Will I have to go to court?
- What else must I do to complete my case?
- What are secured and unsecured debts?
- Do I still owe secured debts (mortgages, car loans) after bankruptcy?
- What is an automatic stay?
- What does “surrendering” property do?
- What is “redeeming” a debt?
- What is reaffirmation?
- Do I have to reaffirm any debts?
- Can I change my mind after I reaffirm a debt?
- Do I have to reaffirm on the same terms?
- Do I have to reaffirm car loans and home mortgages?
- And what about credit cards and department store cards? Should I reaffirm those?
- Should I reaffirm any debt?
- What is “avoiding” a lien?
- What else should I know?
- How do I find a bankruptcy attorney?
- Can I file bankruptcy without an attorney?
Bankruptcy is a legal process that allows people to get a fresh financial start if they are unable to pay their bills. Federal law provides the right to file for bankruptcy, and federal courts hear all bankruptcy cases. Under most circumstances, a bankruptcy filing will immediately stop all your creditors from attempting to collect debt from you, at least until your debts are sorted out in the bankruptcy process.
Filing for bankruptcy might make it possible for you to:
- Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. Its purpose is to give you a fresh financial start.
- Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (In rare instances, bankruptcy can eliminate or modify certain mortgages and other liens on your property without payment.)
- Prevent repossession of a car or other property or force the creditor to return property even after it has been repossessed.
- Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
- Restore or prevent termination of utility service.
- Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
Bankruptcy is not the cure for every financial crisis and it is not the right option for every person. It is usually not possible for bankruptcy to:
- Eliminate certain rights of “secured” creditors. A creditor is “secured” if it has taken a mortgage or other lien on property as collateral for a loan. Home mortgages and car loans are common types of secured debts. However, through the bankruptcy process you can force secured creditors to accept payments over time, and bankruptcy can eliminate your obligation to pay any additional money on the debt if you decide to turn over the property. But you generally cannot keep secured property unless you continue to pay the debt.
- Discharge types of debts singled out by bankruptcy law for special treatment, such as alimony, child support, most student loans, criminal fines, court restitution orders, and most taxes.
- Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
- Discharge debts that arise after bankruptcy has been filed.
No. A person, whether a citizen or not, may file a bankruptcy case even if the person does not reside in the United States, so long as the person has assets in the United States.
According to 28 U.S.C. § 1408, bankruptcy can be filed in the “district court for the district- (1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or (2) in which there is pending a [bankruptcy] case . . . concerning such person's affiliate, general partner, or partnership.”
The law provides for four main types of bankruptcy cases for individuals. They include:
- Chapter 7, which is known as “straight” bankruptcy or “liquidation.” Under this form of bankruptcy, the debtor must give up property that is not “exempt” so that it can be sold to pay creditors. However, most people who file for chapter 7 bankruptcy are able to keep most, if not all, of their property, with the exception of property that is very valuable or subject to a lien for which the debtor is unable to make payments.
- Chapter 11, which is known as “reorganization” and is used by businesses and a few individuals who have very large debts.
- Chapter 12, which is reserved for fishermen and family farmers.
- Chapter 13, which is a known as a “wage-earner’s plan” and is used by people to pay all or part of their debts over a period of years using their current income. Chapter 7 and 13 are the two most common forms of bankruptcy for individuals. Either type of case may be filed individually or by a married couple filing jointly.
The law requires you to undergo budget and credit counseling from an approved credit counseling agency within 180 days before you file your bankruptcy case. In that process, the counseling agency will provide you with possible options in credit counseling and help you with a review of your budget. Some agencies provide the counseling service in person, while others do it on the internet or over the phone. To file for bankruptcy, you must have a certificate from the counseling agency that shows you received the required counseling before the bankruptcy case was filed. There are exceptions for people who are actively serving in the military in a combat zone and people who are incapacitated or in other difficult circumstances.
Most approved agencies charge reasonable fees for the required pre-filing counseling. However, they are legally required to provide the counseling and the required certificates without consideration of your ability to pay. You should ask the agency for a reduced fee or ask them to provide the counseling at no charge if you are unable to afford the fee. You must be especially careful when choosing an agency to provide the counseling if you decide to go ahead with bankruptcy, because it is hard to separate the reputable agencies from the disreputable ones. Although many agencies are trustworthy, a lot of them are actually rip-offs. Simply being an “approved” agency for bankruptcy counseling does not ensure that the agency is legitimate. You should also understand that even a good agency cannot help if your financial troubles are too severe.
Some approved agencies offer debt management plans, or “DMPs,” which set up an arrangement where you repay some or all of your debts by sending the agency money each month. The agency then distributes the money to your creditors. Debt management plans can be a good option for some borrowers, but they are a terrible idea for others. Even if it is not the best choice for you, many counseling agencies will pressure you into a debt management plan in order to avoid bankruptcy. A DMP is not for you if making the monthly payment to the plan will leave you unable to pay for your mortgage or rent, utilities, food, prescriptions, and other necessities. Consider these important points:
- Bankruptcy is not always something that you should avoid at all costs. In fact, bankruptcy is the best option for many people.
- You might wind up in bankruptcy anyway if you agree to a debt management plan that you cannot afford (and you must file a copy of the plan in your bankruptcy case).
- Some approved agencies do not offer debt management plans and it is usually a good idea for you to meet with a bankruptcy attorney before you receive the required credit counseling. An attorney can advise you on whether bankruptcy might be your best option, while a credit counselor cannot provide you with legal advice. A good attorney will offer a range of alternatives if bankruptcy is not your best choice. An attorney can also furnish a list of approved credit counseling agencies, or you can check the United States Trustee Program’s website at: Justice.gov. Make sure you check for courses in the right district.
As long as your equity in your car and home is fully exempt, you will not lose your car or home during bankruptcy in most cases. Even in situations where they are not fully exempt, you can still keep the property under chapter 13 if you pay the creditors the non-exempt value.
In some instances, a creditor could have a “security interest” in your home, vehicle, or other personal property. That means that you gave the creditor a mortgage on your home or used other property as collateral for the debt. These security interests stay in place despite a bankruptcy action. A creditor could be able to take your home or property and sell it during or after the bankruptcy case if you fail to make payments on that debt.
You may be able to retain some secured property in a chapter 13 case by paying the creditor the actual value of the property rather than the full balance owed on the debt. It is also possible to use chapter 13 to get caught up on your payments in order to be current on the loan. You might also be able to keep mortgaged property and collateral after you file for chapter 7 bankruptcy. One way is to agree to keep making the payments on the debt until you’ve paid it off, or you can pay the replacement value of property you want to keep. You might also be able to challenge the debt in some situations where the creditor committed fraud or took other improper actions. For loans that you used your household items, furniture, tools, books of your trade, or professionally prescribed heath aids as collateral, you will usually be able to keep those items without making further payments on the underlying debt.
Of course. Many people wrongly think that they will not be able to own anything for a certain time period after they file for bankruptcy. That is not true. You are able to keep all of your exempt property and usually anything that you get after you file for bankruptcy. The main exception is where you receive an inheritance, money from certain property settlements or life insurance proceeds within 180 days after filing for bankruptcy. That money or property must be paid to your creditors if it is not exempt.
Bankruptcy cancels all unsecured debts except for these:
- Debts not listed on your bankruptcy petition (There can be exceptions.)
- Most taxes and debts incurred to pay taxes
- Money owed for child support or alimony
- Most fines and penalties owed to government agencies
- Student loans, unless you can prove to the court that repaying them will create an “undue hardship”
- Loans you obtained by knowingly giving false information to a creditor, who reasonably relied on it in offering you the loan
- Debts incurred by injuring someone while driving under the influence of drugs or alcohol
- Debts resulting from “willful and malicious” harm
- Mortgages and other liens that are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor, i.e., a deficiency judgment can be discharged in bankruptcy)
Most bankruptcy cases require you to go to only a “meeting of the creditors,” where you confer with the bankruptcy trustee and any creditor that opts to attend. In most situations, this meeting is a short and simple process that involves your answering a few questions about your bankruptcy forms and your finances. You might be required to appear at a hearing in some situations when complications arise or if you dispute a debt. You may also need to attend a hearing in a chapter 13 case when the judge decides whether to approve your plan. You will receive notice of the court date and time and your lawyer will go with you.
You must complete an approved course on personal finances after you have filed your case. The class usually takes about two hours, and many course providers give you the option of taking the course in person, over the internet (usually by watching a video), or on the phone. Your attorney can provide you with a list of organizations that provide approved courses, or you can use the United States Trustee Program office’s website. Make certain to look for classes in the right district. You should ask the agency to waive or reduce the fee for the course if you are unable to afford it. You should sign up for a course soon after you file your chapter 7 case, and you should ask your attorney when you should take the course if you have a chapter 13 case.
Unsecured debts are debts that are not “secured” by any collateral. Some examples are personal loans, credit cards issued by banks, such as Visa, MasterCard, American Express or Discover, and other credit cards used to purchase consumable items. Vehicle leases, medical bills, and personal loans are all unsecured debts.
Secured debts are those that are “secured” by some kind of property as collateral to guarantee repayment of the loan. Typical examples of these include mortgages, auto loans, and loans from finance companies, which can be secured by purchases of household items, furniture, computers, or electronics. If you purchase goods using a store’s credit card (e.g., Best Buy or Rooms to Go), the store typically asserts that it is a secured creditor because the credit agreement gives them a security interest in the financed items.
Yes and no. “Secured debt” describes a situation where you give the lender a mortgage, deed of trust, or lien on a property as collateral for a loan. Mortgages and car loans are the most common types of secured debts. The way secured debts are treated after bankruptcy can be confusing.
Bankruptcy cancels your personal legal obligation to pay a debt, including secured debts. This means that the creditor cannot sue to collect the balance you owe on a secured debt after you declare bankruptcy. But the creditor is still allowed to take back the collateral if you fail to pay the debt. As an example, the creditor can ask the bankruptcy court for permission to repossess your car if you fall behind on your payments. Another possibility is that the creditor could wait until your bankruptcy is over and then seek foreclosure or repossession. Even though a secured creditor cannot sue for money if you fail to pay, the creditor can still take back the collateral in most cases.
That means that if you want to hold onto property that is collateral for a secured debt, you need to make up missed payments and continue making them during and after bankruptcy. You also need to maintain any required insurance and you might have to reaffirm the debt. There are also ways to modify debt in bankruptcy.
The provision in the Bankruptcy Code that provides for an “automatic stay” gives significant protections to debtors. After a debtor files a bankruptcy petition, the automatic stay bars creditors from continuing any collection efforts or executing a judgment until the bankruptcy case closes or is dismissed. Collection efforts can continue on any particular piece of property that is deemed to be outside of the “estate.” It is even possible for an automatic stay to halt a foreclosure sale minutes before it is finalized. There is no notice requirement, and any creditor that acts in willful violation of the stay must pay damages, including attorney’s fees and costs. It is important to keep in mind that the automatic stay begins only after you file your bankruptcy petition. It does not begin when you first hire a bankruptcy attorney.
An automatic stay lasts for only thirty days for debtors who have had a prior bankruptcy case dismissed within the past year, although it can be extended in situations where you show good faith. There is no automatic stay at all for debtors who have had two bankruptcy cases dismissed in the past year, and they must ask the court for a stay within thirty days of filing and they must show good faith. If these limitations did not exist, there would be the potential for a debtor to take advantage of the process by filing petitions back to back with previously dismissed petitions, thus making the stay effectively permanent.
When you file a Chapter 7 case, you are required to make a statement within thirty days regarding your intention as to your property. You can choose to surrender the property or keep it, and each option has different consequences. If you decide to hold onto the property you can choose to: 1) redeem the property (keep the property by paying the creditor the amount owed), 2) reaffirm the debt, 3) simply retain it and keep paying, or 4) claim the property as “exempt.” (See below for more details about these options.) If you instead decide to surrender secured property, the trustee will typically sell the property (if there is any equity), and the creditor that lent you money based on that particular collateral or security will be barred from suing you for any additional funds. If there is no equity in the property (i.e. it is not worth more than you owe), the trustee will likely abandon the asset. Florida law has imposed repercussions for debtors who surrender real estate that is subject to foreclosure. See § 702.12, Florida Statutes.
Bankruptcy law provides the right to “redeem” the collateral. For certain types of property, it is possible to retain collateral on a secured debt if you make a lump-sum payment to the creditor for the amount that the thing is worth rather than the balance owed on the loan.
You can save a great deal of money by redeeming. That’s because appliances, furniture, and other household items lose their value very quickly once they are used, meaning you can likely redeem them for much less than their original cost or what you owe on the debt.
Even though you filed bankruptcy to discharge your debts, you still have the option to “reaffirm” a debt through a written agreement. If you do that, you will be legally obligated to pay the debt despite your bankruptcy discharge. That means that the debt will not be canceled by bankruptcy if you reaffirm it. You can receive collection calls, be sued, and possibly have your wages attached or other property taken if you fall behind in payments on a reaffirmed debt.
Reaffirming a debt is a serious matter. You should never agree to a reaffirmation without a very good reason.
No. Reaffirmation is always optional and it is never required by bankruptcy law or any other law. Remember that you can always say no if a creditor is pushing you to reaffirm a debt. You should notify your bankruptcy attorney if any creditor contacts you about reaffirming a debt or any other issue during the bankruptcy process.
Yes. Although you must enter into a reaffirmation agreement with forty-five days after the first creditors’ meeting, you can cancel a reaffirmation up to sixty days after it is filed with the court or at any time before discharge, whichever occurs later. You must notify the creditor in writing in order to cancel a reaffirmation agreement, but you are not required to state a reason for your decision. The creditor must then return any payments that you have made under the agreement.
Also, a reaffirmation agreement must be written and has to be signed by your lawyer or approved by the judge.
No. A reaffirmation creates a new contract between you and the lender. You should negotiate with the lender to get better terms such as a lower interest rate or monthly payment. You can also ask for a reduction in the amount that you owe. It is always worth a try even though the lender can refuse. The lender must provide you with disclosures on the reaffirmation agreement regarding the original credit terms and any new terms that you have negotiated with the lender.
You can reaffirm and possibly hold onto your car or home if you are behind on the payments and can afford to catch up on them. This could offer a good reason to reaffirm if the lender agrees to allow you sufficient time to get current. But reaffirmation could be a bad choice if you were having trouble keeping up-to-date on your payments before the bankruptcy and your financial situation has not gotten better. It is likely that the collateral will be repossessed or foreclosed after bankruptcy, because your obligation to pay continues.
If you have reaffirmed the debt, you could be required to make up the difference between what the collateral sells for and what you owe on it by way of a deficiency judgment. You might not need to reaffirm in order to keep your car or house if you are current on your payments. In some circumstances, the lender will let you keep the car or home without a reaffirmation so long as you keep making the payments.
It is almost always a bad idea to reaffirm a credit card. By reaffirming a debt, you will be required to pay a debt that bankruptcy would otherwise cancel. That is usually a very high price to pay for keeping a credit card. Use cash instead. Most times you will be able to get a new credit card after or even during bankruptcy, and the new card will not have an unpaid balance.
It is possible that the debts on some store credit cards will be secured and the items that you bought on the card will be collateral. If you do not reaffirm the debt, the store might threaten to repossess the items, such as a washing machine, television, or couch. It is very unlikely that the store will repossess used items, but it is possible when dealing with a store credit card. That means it is up to you to determine how crucial the item is for you and your family. If it is possible to replace it inexpensively or live without it, then you should not reaffirm. Nothing will stop you from shopping at the store with cash, and the store might offer you a new credit card even if you do not reaffirm. In that case, you need to be sure that the old balance does not show up on the new account.
Sometimes an offer to reaffirm might initially seem appealing. A department store might offer to let you keep your credit card if you reaffirm $1,000 of a $2,000 balance owed prior to bankruptcy. They say the monthly minimum payment will be just $25 and they will even give you a $500 line of credit for new purchases. What they might fail to tell you is that they would give you a new card in a few months even if you do not reaffirm. They also will likely not tell you that you are agreeing to repay $1,000, plus interest, even though the law says that you can have that debt discharged. That is a lot to pay for $500 in new credit.
The thing to keep in mind is that if you decide to reaffirm, you are legally obligating yourself to repay a debt that should be discharged in bankruptcy. The first question to ask yourself when thinking about reaffirming is whether you can keep this property without reaffirming. Also, whether you can afford the monthly payments. When you reaffirm, you are agreeing to make monthly payments and you are also agreeing to suffer the consequences if you cannot timely pay. Any reaffirmation agreement is required to include details about your income and expenses, as well as your signed statement that you can afford the payments.
You should not reaffirm if you have any question as to whether you can afford the payments. It is smart to be hesitant when you are considering relinquishing your right to have a debt discharged. A competent bankruptcy lawyer can counsel you through this process and more.
The ability to nullify or “avoid” a lien on secured property or to nullify and reverse a transfer of exempt property that was transferred against your will is one of the most powerful tools that a debtor and trustee has in the bankruptcy process. With a proper motion under the Federal Rules of Bankruptcy Procedure, the qualified bankruptcy attorneys at the Law Offices of Evan M. Rosen can seek to nullify judicial liens and liens on household items, furnishings, books, tools of your trade, or professionally prescribed health aids.
Discrimination. A government agency cannot discriminate against you because you have filed for bankruptcy. Government agencies and private entities involved in student loan programs also cannot discriminate against you based on a bankruptcy filing.
Utility services. Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills that arise after bankruptcy is filed.
Driver’s license. If you lost your license solely because you could not pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.
Co-signers. If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt. If you file under chapter 13, you may be able to protect co-signers, depending upon the terms of your chapter 13 plan.
It is crucial that you carefully select a competent bankruptcy attorney. A lawyer should be able to discuss your options and answer your questions--to counsel you to help you make an informed decision.
Recommendations from family, friends, or other people in the community can be a good way to find a trustworthy bankruptcy attorney. Be sure to thoroughly review retainer agreements or any other documents the lawyer asks you to sign. Do not consider hiring an attorney unless he or she agrees to represent you from the beginning of the case until the end.
In bankruptcy, as in all areas of life, remember that the person advertising the lowest rate is not necessarily the best or even the cheapest in the long term. You might save money up front, but in the long run, you may lose rights to property or money that you might not have lost with proper bankruptcy planning from a qualified and well-informed attorney.
Document preparation services, also known as “typing services” or “paralegal services,” involve non-lawyers who offer to prepare bankruptcy forms for a fee. These can often be problematic because non-lawyers are not allowed to offer advice and they offer no services once the bankruptcy case is underway. Beware of unscrupulous operators in this area who give bad advice and defraud consumers.
To prepare yourself for your first meeting with a bankruptcy attorney, you should know:
- What types of debt are causing you the most trouble?
- How did your debts arise and are they secured?
- What are your assets?
- On average, how much money did you make per month over the last six months?
- Is any action pending or about to occur to foreclose or repossess property, to attach your wages or bank account, or to shut off utility service?
- What are your goals in filing the case?
While some people might be able to file for bankruptcy without the advice and help of a lawyer, this is not something that you should do without first considering the potential consequences. The bankruptcy process can be very confusing and tedious. Simple errors could result in your losing property or money that you should have been entitled to keep. Patience, knowledge, and careful preparation are necessary for success in a bankruptcy case. Remember, the law chagnes and each case is different.
If you or anyone you know is considering filing for bankruptcy, call our Florida bankruptcy lawyers today at (754) 400-5150 or contact us online. Let the lawyers and staff at the Law Offices of Evan M. Rosen serve you!