About Bankruptcy
While the information presented below is accurate, the information is intended to be educational only. It is not intended to be legal advice for your particular circumstances and it does not create an attorney-client relationship between you and this law firm. Laws affecting you in bankruptcy are constantly changing. You should consult with a bankruptcy attorney licensed to practice in your state for advice about your particular situation in relation to the prevailing law.
Types of Bankruptcy:
Although there are several different types of bankruptcy cases, there are only two types of bankruptcy cases normally filed by individuals - Chapter 7 and Chapter 13.
Chapter 7 is referred to as Liquidation and contemplates a court-supervised process by which a trustee collects assets, reduces the assets to cash and distributes money to creditors, subject to the debtor's right to retain certain exempt property and the rights of secured creditors. In most cases there is little to no non-exempt property so there is not really any actual liquidation of assets. Most cases are called “no asset” cases because the trustee will not be able to liquidate assets to pay any creditors. In Chapter 7 a debtor normally receives a discharge of debts within a few months of filing the case.
Chapter 13 bankruptcy is designed for an individual debtor who has regular income. Chapter 13 allows a debtor to keep assets, such as a house or vehicle. In a Chapter 13 bankruptcy, the debtor proposes a plan to repay creditors over a period of three to five years. In most cases, however, repayment is not full repayment, but rather repayment of a fraction of the debt owed. Unlike a Chapter 7 bankruptcy, a Chapter 13 debtor does not receive a discharge until the plan is complete.
If your home is about to or being foreclosed, bankruptcy may be an option for you. Filing bankruptcy will stop the foreclosure process. More importantly, Chapter 13 bankruptcy gives you the chance to reinstate your mortgage. In some cases, if you have more than one mortgage on your home, you may be able to get rid of – or strip – the second or third mortgage from your home. Home equity loans are often secured by mortgages on your property.
Filing bankruptcy will stop the foreclosure process. When you file bankruptcy the law imposes an “automatic stay” against creditors pursuing certain actions such as foreclosures. The automatic stay stops the foreclosure process to give you time. You may be able to reinstate your mortgage.
A Chapter 13 bankruptcy provides you the opportunity to cure past due mortgages. Maybe something has happened to you that caused you to get behind in your mortgage payments. The Bankruptcy Code allows you to spread out the past due mortgage payments over a period of up to three years. While you are in bankruptcy, you must pay your current mortgage payments timely and at the same time pay a little bit of the past due amount. When you complete your Chapter 13 plan, you will have kept your post-filing payments current and cured the past due balance.
Filing bankruptcy can stop or prevent the repossession of personal property like a car. The automatic stay has the same effect as it does with a pending foreclosure. The automatic stay prevents or halts the repossession. If repossession has already occurred, but the collateral has not been sold, filing bankruptcy will give you the opportunity to get the property back as long as you can pay for it.
If you have stopped paying your bills, you are probably being called by your creditors. This, of course, increases the anxiety and stress in your life. It becomes more troublesome when creditors start calling you at work. When you file bankruptcy, creditors must stop calling you. Each of your creditors receives notice of your bankruptcy filing. If a creditor continues to call you after you filed – especially if the creditor knows that you have filed bankruptcy – the creditor will be in violation of the law and can be held in contempt and ordered to pay damages.
If you owe taxes to the IRS, you may be able to discharge your tax obligation. Your ability to discharge will depend upon the type of tax involved, the age of the tax (what year or years you owe) and when you filed the tax return involved. Generally if you owe income taxes for a tax year and it has been three years since you filed the tax return the taxes can be discharged. For instance if you owe taxes for calendar year 2004 and you filed a timely tax return in 2005, the taxes today would be considered “stale” and would be dischargeable. If the IRS has recorded a lien, however, and that lien has attached to property you own, the taxes are “secured” and different rules would apply. Taxes must be unsecured to be discharged. Not all types of taxes are dischargeable. Taxes such as sales tax and employer trust fund taxes cannot be discharged.
If a creditor has garnished your wages or bank account, filing bankruptcy will stop the garnishment. You will then have an opportunity to get your money back. It is important that you react very quickly if you are garnished. If you wait too long to file bankruptcy after the writ of garnishment is served, the garnishing creditor will have an enforceable lien against the money garnished. The bottom line is do not wait.