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Bankruptcy FAQ

Read This and Feel Better About Yourself!

Each year more than 1.5 million Americans file for bankruptcy along with thousands of companies. It is an accepted part of our economic system. As Americans we are taught from birth to consume goods in the capitalist tradition. Marketing and society have evolved to the point of seductive messages to buy at any cost. However when we are unable to pay for the goods they told us to buy we beat ourselves up about our ability to pay.

This is a striking contradiction of American society. Buy, buy, buy and then find a way to pay or else. In addition to this trap, the payment methods available include credit providers who charge such high interest it would have been illegal in the recent past. The credit providers then encourage us to make minimum payments and increase our credit limit to stimulate more buying. This lulls us to sleep with purchasing beyond our means. High-powered marketing and banking companies have deliberately trapped us into paying everything we earn to simply maintain our debt so that they can make more money. Feeling ashamed or guilty about not paying the very people that trapped us in the first place is ridiculous.

People from every economic sect seek bankruptcy protection. My clients come from all walks of life. It is important to finally realize that getting trapped once does not meant that you have to pay all of your earnings fro the rest of your life because you made a mistake. There are many more important things in life and there is no time like the present to get financially healthy. Bankruptcy is one of the most effective means to deal with overwhelming debt. There is no one size fits all bankruptcy and there is no substitute for professional representation regarding your specific fact scenario.

What Is Bankruptcy?

Bankruptcy is a federal program established to offer a way out of seemingly insurmountable debt. There are two types of personal bankruptcy. Chapter 7 allows discharge of debts without requiring payments to the court and usually allows keeping items like houses, cars, and household goods. A Chapter 13 bankruptcy is for people who earn more money or who are delinquent on things they want to keep like houses or cars. Chapter 13 requires 36-60 payments to the court to repay the delinquency or a percentage of the debt.

You can determine the chapter appropriate for you by determining your gross income or by completing a federal means test. If you earn more than the mean income in the state you may still be eligible for a Chapter 7 if you pass the means test. If you fail them both you may be better suited for a Chapter 13 partial repayment plan.

A Chapter 13 plan is not a death sentence. It simply means that you will be required to make payments for a period of time. It may not even result in paying more money to creditors than you would in a Chapter 7.

How Do I Stop the Phone Calls?

One of the only sure ways to stop the collection calls is to actually file the bankruptcy petition. Once filed an “automatic stay” goes into effect and most collectors can no longer call you. Although very effective, this is not the only tool to stop harassing phone calls.

You don’t need bankruptcy to stop creditor phone calls and harassment. Federal law prohibits debt collectors from calling once you tell them in writing to stop. Even if you orally tell debt collectors that you never intend to pay, the law prohibits them from contacting you except to send one last letter making a final demand before filing a lawsuit. It is difficult to police this action, even with the federal law protecting you, so these efforts may or may not be successful.

Another effective way to stop the phone calls is to know your rights. If a caller threatens to sue you, judgments are normally as easily dischargeable in bankruptcy as credit card debt. After you have decided on bankruptcy, this threat really has little meaning. Additionally, if your only income is from social security or disability a lawsuit will do little to help collection efforts. At this point you may be judgment proof and may not even need a bankruptcy.

Can I Still File Bankruptcy?

The well-publicized law changes have scarcely affected anyone’s ability to file bankruptcy. Rumors that bankruptcy is not available anymore or that your creditors can again pursue you in ten years are simply not true. The new rules have imposed increased scrutiny of income and imposed internet based education before discharge, but bankruptcy is still a viable option and an accepted part of our economic system.

Most people that consider bankruptcy turn to their close friends or family and normally encounter at least one person who claims to know everything there is to know about bankruptcy and cannot wait to share it with them. From my experience, most of this information is not reliable. There is no substitute for consultation and representation by a professional. The cost is really minimal when compared to the risks involved with the pitfalls. There is simply no reason to willingly step in the way of this kind of problem with affordable representation readily available.

What About My Business?

If you have a current business or even an old business you can still discharge the business debts either in a personal bankruptcy or reorganize the business debts in a Chapter 11 bankruptcy. Depending on they type of business organization you operate, you are likely able to discharge debts from an old or struggling business.

How Does Bankruptcy Affect My Debt?

Debts are commonly separated into at least two broad categories, Secured and Unsecured. Secured debts are those where you may lose something if you don’t pay such as a home or a car loan. An unsecured debt is one where you have not pledged collateral or in which a lien has not been filed against you. Unsecured debts include credit cards as well as most other debts. Most judgments are also unsecured and can be easily discharged in bankruptcy.

Unsecured debts are normally dischargeable in bankruptcy. There are exceptions to the rule such as if the debts were incurred in anticipation of bankruptcy or within 90 days of filing or if there is some fraud associated with the transaction. Unsecured debts that were incurred to pay non-dischargeable taxes and/or student loans or associated with alcohol or malicious offenses may also be non-dischargeable. are also suspect.

Secured debts are treated completely different. If you want to retain your house or your car and you are current on your payments you will normally be able to keep them if you want to continue to make the payments. If you are not current and want to keep your secured property you will likely be able to keep the property be entering into a repayment plan for the arrearage with the court. If, however, you want to forfeit the property and not make any more payments or incur any more debt associated with the property, even if you owe more than the property is worth, is an option as well.

Will I Lose My Property?

Bankruptcy is designed to give a fresh start, not to leave you destitute. You are entitled to keep certain property. This property is commonly referred to as exempt. The exemptions allowed in Arizona protect a majority of property that is important to people. For example, you can protect $125,000 equity in your home and $5000 equity in your car. You can exempt $4000 worth of household goods and 100% of your qualified retirement account. I find a majority of people I meet with would not be forced to liquidate any of their property in a bankruptcy filing.

In addition to not losing your property, you may be able to “redeem” your secured personal property and only pay the value of the property instead of what you owe. For example, if you owe $10,000 on your car but it is only worth $5000, my firm works with the court and auto financiers to obtain the court order that you only pay the $5000 value of the car.

Do I Have To List All My Credit Cards?

No, unless the trustee tells you to. You must list all of your debts. If you have a credit card with no balance, it is not considered a debt and does not need to be listed on the bankruptcy petition. The credit card may or may not survive the filing. The creditor can choose with whom they choose to do business and my cancel the card anyway, but you can be armed with this information before you file.

Who Will Know? Will I Lose My Job?

No employer – government or private – can fire you or discriminate against you because you file for bankruptcy protection. However, bankruptcy will not prevent an employer from firing you for other reasons and there are a very few jobs that are allowed to consider creditworthiness in hiring. No federal, state, or local government agency can take your bankruptcy into account when making a hiring decision, but there is no such bar for private employers.

Employers and others usually are not informed of a bankruptcy. It is a public filing, but unless they are in some way involved in the bankruptcy they will not receive notification. If you owe money to a party or otherwise list them in your petition, they will receive notice. This usually does not include your employer unless you are being garnished or a creditor has involved your employer in their collection activities. The same holds true for your family. Unless they have some stake in the bankruptcy, they are not sent notice. Unfortunately, any party can learn of a bankruptcy through an easy internet search or any public record report.

How Sure Can I Be That My Bankruptcy Will Be Granted?

Bankruptcy is presented by the federal government as a way to relieve your debts. As a citizen, you are eligible to take advantage of the government program. It is not something you have to invent or talk them into. As long as you play by the rules, your bankruptcy will likely be granted.

What If I Don’t Do Anything?

There are many instances when bankruptcy is not the right option. For example, if all of your income is a result of disability or social security payments, and you have no assets, you may be judgment proof and there would be nothing for creditors to take.

If you have been threatened with a lawsuit or if you have been sued, you may choose to ignore such filing. This will not extinguish the debt or address the situation. This will only prolong the inevitable. Once the requisite time has passed, a judgment will likely be taken. After this the plaintiff will be able to proceed against your assets or your income. This is not usually the best option.

If you have not been sued, remember that unsecured creditors usually (except student loans and taxes) must sue in order to collect. They cannot garnish your wages or take other actions without suing you. You cannot be thrown in jail for not paying your debts and your creditors cannot collect money that you do not have.

Before determining whether inaction is the best action, consider your budget. Write out all of your expenses and all of your income. If you cannot pay your expenses from your income and cannot find a way for the numbers to match, it is a foregone conclusion that your debt will likely someday overtake you. At this point bankruptcy is usually one of your best options.

Do I Need an Attorney?

Determine your comfort level with the bankruptcy procedure. If you feel you can represent yourself with the trustee or that your bankruptcy is not that complex you may be safe simply consulting an attorney to have your petition prepared and representing yourself from that point. Most people would rather have representation throughout the entire process and the additional expense is minimal. It does cost money to file bankruptcy, but my firm has the most lenient payment plans and other suggestions to help fund your representation.

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