Will filing bankruptcy eliminate all my debts?

Bankruptcy does not necessarily eliminate all debts, and often simply restructures existing debts–this leaves you responsible for all future payments.

Examples of debt not discharged:

• Alimony and child support
• Education Loans
• Tax debts
• New purchases owed that are more than $1,000 for luxury goods or services.
• New cash advances that are more than $1,000
• The list goes on . . .

What is bankruptcy?

Is this the same as a “Consumer Credit Counseling Service?”

Who is best suited for our program?

How long does it take to become debt free?

How will this affect my credit?

Will my accounts be closed?

Do I have to include all my debts?

What types of debt do you accept?

What do I do if a creditor calls?

Is my information confidential?

What are the different types of bankruptcy?

Bankruptcy can be described as a "liquidation" or "reorganization." Most consumers will file a Chapter 7 or Chapter 13.

"Liquidation" bankruptcy is called Chapter 7 and is the most common filing. In a Chapter 7 bankruptcy, a consumer or business asks the bankruptcy court to discharge all of the debts they owe. Some debts cannot be discharged. (See Nondischargeable Debts question.) In exchange for the discharge of debts, the business' assets or consumer's nonexempt property are sold (or "liquidated"). The proceeds are used to pay off the creditors. Individuals filing for Chapter 7 usually have severe debt problems with large credit card and other secured and unsecured debt. They typically do not own a lot of assets, which can be liquidated and therefore do not have as much to lose.

There are several types of "reorganization" bankruptcy: Chapter 11, Chapter 12, and Chapter 13. Consumers with secured debts under $871,550 and unsecured debts under $269,250 can file for Chapter 13. The main difference between Chapter 13 and Chapter 7 is Chapter 13 enables a debtor to retain certain assets that would otherwise be liquidated in Chapter 7. In most cases, you can keep your home and car under either plan (provided your equity does not exceed certain limits). Under Chapter 7, however, you won't be able to keep rental properties, antique collections, etc. which you can retain under Chapter 13. A Chapter 12 is for family farmers.

Family farmers can file for Chapter 12. Consumers with debts in excess of the Chapter 13 debt limits and businesses can file Chapter 11—a time-consuming and expensive process. In any reorganization bankruptcy, you file a plan with the bankruptcy court proposing how you plan to repay your creditors. Some debts must be repaid in full, some are partially repaid, and others aren't paid at all. Some debts must be paid with interest, some are paid at the beginning, and some at the end.

Why would I file Chapter 13 instead of Chapter 7?

A chapter 13 bankruptcy is normally for people with too much income to file a chapter 7 or for those who have a lot of nondischargeable property. Chapter 13 bankruptcy is for consumers or small businesses who want to repay their creditors while protecting their real estate and personal property and avoiding harassing collections efforts. You cannot file a Chapter 7 if you have filed a 7 or 13 within the past 6 years (unless you paid off at least 70% of your unsecured debts in a previous 13 filing). However, you can file for Chapter 13 at any time. A trustee would propose a 3- to 5-year plan to creditors where the debtor would repay part of his debts out of future income. The trustee calculates how much you can afford to pay each month after considering your living expenses, income, and disposable income. At the end of the plan's period, you would no longer be liable for your debts.

In a Chapter 13, you end up paying back at least 50% of your debts, and in some cases, the entire amount. If a payment is missed you could be forced to pay the whole debt back. A Chapter 13 doesn't stay on your credit report as long as a Chapter 7, and there are some debts that can be discharged in a 13 that can't be discharged in a 7. The main problem with chapter 13 is that in some cases you could end up paying back 50% or more of the debt, in some states the entire amount of the debt, and forced by the courts to make the payments. If you then miss a payment, you could end up in breach of court and forced to pay the whole debt. You can stop the collection efforts using chapter 13, but why would you want to tie yourself into making payments by the courts?

Who is eligible for a bankruptcy?

How negatively will a bankruptcy affect me?

Bankruptcy should be considered only as a last resort. Why? Bankruptcy will stay on your credit report for up to 10 years. However, it will actually remain on your court records for 20 years. In other instances, it will follow you for the rest of your life. For example, if you apply for a loan, job, insurance, or other items, you may very well be asked "have you ever filed for bankruptcy?" This can negatively impact your future employment and carries with it a negative stigma.

Credit companies also do not look favorably on people that have used bankruptcy as a means of solving their debt problem. The credit card offers you'll receive will carry with them a "higher risk" interest rate than had you not filed. While bankruptcy may help you eliminate your debt, its negative affects on your credit, emotions, court records, and self-esteem may last much longer than 10 years.

Will filing for bankruptcy stop harassing phone calls from collectors?

What generally happens in consumer bankruptcy cases?

In a Chapter 7 bankruptcy filing, you file several forms with the bankruptcy court that list income, expenses, assets, debts and property transactions for the past two years. The cost to file is $200, which may be waived for people who receive public assistance or live below the poverty level. A court-appointed trustee is assigned to oversee the case. A month after filing, you must attend a meeting of creditors where the trustee reviews your forms and asks questions. If you have any nonexempt property, you must give it (or its value in cash) to the trustee. In 3 to 6 months, you will receive a notice from the court that "all debts that qualified for discharge were discharged."

Chapter 13 differs slightly. You file the same forms along with a proposed repayment plan. Here you describe how you plan on repaying your debts over the next 3 to 5 years. The cost to file is $185, and a trustee is assigned to oversee the case. You attend the meeting of creditors. Often 1 or 2 creditors attend this meeting, especially if they don't like your plan. After the meeting, you attend a hearing and the bankruptcy judge either approves or denies your plan. If confirmed, and you make all the payments, you may receive a discharge of any balance owed at the end of the case.

What debts are not dischargeable?

What property could I lose if I file bankruptcy?

Will I lose my house or apartment?

While bankruptcy is not designed to take away your home, there are a few situations where you can lose your home. If you are behind on your mortgage payments, you will almost certainly lose your house if you file a Chapter 7. In a Chapter 13 bankruptcy, you will not lose your house if you immediately resume making the regular payments called for under your agreement and repay your missed mortgage payments through your plan. In Chapter 7 bankruptcy, whether or not you will lose your house depends on the amount of equity you have in the property and the amount of any homestead exemption (which varies state-to-state). If the total amount of debt against your house is less than the market value, you may lose your house unless a homestead exemption protects you.

If you are current on your rent payments and file for bankruptcy, it's unlikely your landlord will know. But if you are behind on your rent, it's likely your landlord will attempt to evict you.

Will the fact that I filed bankruptcy appear on credit reports?

Bankruptcy is treated as a judgment and will be listed in credit reports for a period of up to 10 years. Bankruptcy is also a matter of PUBLIC RECORD . . . and can remain there for up to 20 years following you as you apply for employment and even insurance!

A common misconception is that by filing bankruptcy all your debts will be discharged, leaving you debt free . . .

How do I apply for your program?