Considering Bankruptcy?

You have the right under federal law to file for bankruptcy relief from your creditors. Bankruptcy is a legal proceeding in which a person can get a fresh financial start. Bankruptcy can be very useful and effective in resolving financial problems in certain cases. However, it is not the answer to all financial problems or the right step for everyone. Also, it can be very important to choose the right time to file for bankruptcy relief.

For instance, in general, you should always wait as long as possible before filing bankruptcy because you can do so only once every six years. In most cases, you will want to save this valuable option until you really need it. Also, you may not need to file bankruptcy even though creditors are threatening you because you may have no nonexempt property or wages. This means you have nothing the creditors can take from you. You can't be put in jail for failing to pay your civil debts (other than fines or other court ordered amounts).

The only way to be sure bankruptcy is right for you is to discuss your situation with a lawyer familiar with bankruptcy. Every case is different, and laws change from time to time. This article gives you some basic information, but it does not substitute for consultation with an attorney.

Some things bankruptcy can do:

  • Eliminate the legal obligation to pay most or all of your debts. This is called a "discharge" of debts.
  • Stop foreclosure of your home and allow you to catch up on missed payments.
  • Stop repossession of a car or other property, or, in some situations, force the creditor to return property even after it has been repossessed.
  • Stop wage garnishments.
  • Stop debt collection harassment.
  • Restore or prevent termination of utility service for nonpayment of previous bills.
  • Get your drivers license back if it has been suspended because you didn't pay court-ordered damages for a driving accident (unless you were driving under the influence of drugs or alcohol).

Some things bankruptcy cannot do

  • Eliminate certain rights of secured creditors. Some examples of secured debts are car loans and home mortgages. You can force secured creditors to take payments over time, but generally, you cannot keep the collateral unless you continue to pay the debt.
  • Discharge debts that arise after the bankruptcy has been filed.
  • Discharge certain types of debts, such as child support, alimony (spousal maintenance), certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and most taxes.
  • Eliminate the obligation of a co-signer on your loan in most cases.

What types of bankruptcy can I choose?

Chapter 7

This is also known as a "fresh start" bankruptcy, or "liquidation". Your debts are discharged (canceled), but you must give up any nonexempt property to the trustee to pay to your creditors. You can keep secured property if you are current on the payments and continue making the payments regularly.

Chapter 13

This is also called "reorganization", "Wage earner plan." Chapter 13 allows you to keep valuable property, such as your home or car, which you might otherwise lose due to past due payments. You can keep this type of property in Chapter 13 if you are able to make the necessary payments. Usually that will be the regular monthly payments plus a payment toward the arrears. In Chapter 13, you can have between three and five years to pay back the arrears.

What property can I keep?

In Chapter 7 bankruptcy, the trustee must take your non-exempt property and use it to pay your creditors. Usually, though, you can make an agreement with the trustee to buy it back, if you want to and are able to. In Chapter 13, you can keep all property, even non-exempt property, so long as your unsecured creditors get the value of the non-exempt property through your Chapter 13 plan. What determines exempt property varies by state law.

Tax refunds and earned income credits are not exempt and can be taken by the bankruptcy trustee, depending on the time when you file your bankruptcy case. You should consult a lawyer before filing bankruptcy to see if this will affect you.

If you have property, which is non-exempt, you could sell it before filing bankruptcy and use the money to purchase things, which are exempt; such are food, furniture, or clothing. However, you cannot give property away to friends or relatives, and have them give it back to you after the bankruptcy. Any transfers of property without receiving fair value for it within one year before filing bankruptcy are called a fraudulent transfer. The property could be taken by the bankruptcy court and sold to pay some of your debts. If the court finds you have been dishonest in your bankruptcy, you could be denied your discharge. You could also be charged with federal or state crimes, which carry serious fines and jail sentences.

Also, you cannot prefer one creditor over another by making payments on the debt within 90 days before filing bankruptcy (one year if the person paid is an "insider" (family, friend, etc.) If you do so, the bankruptcy court can take that money away from the person you paid. This is to insure that all creditors are treated equally. This does not apply, however, to regular monthly payments such as your car payment, house payment, rent, utilities.

Will I have to go to court?

In most cases, you will only have to go to one hearing called "meeting of creditors". Usually, this will be short and simple. The trustee, including your name, address will ask you a few questions, whether you have had a bankruptcy discharge before, how long you have lived here. Creditors are permitted to attend and ask you questions. They cannot be abusive, however, so this is nothing to worry about. Usually, your case will be completed within 4 to 6 months from filing it.

How much does bankruptcy cost?

You will have two types of fees to pay: Court fees and your attorney's fees. The Court charges a filing fee, which cannot be waived. That fee is $200.00 for a Chapter 7 case, and $185.00 for a Chapter 13 case. You do not have to pay any money to get your case filed, but you will be required to pay the fee within a reasonable time after filing. Payment plans can be set up for the Court fees.

How will bankruptcy affect my credit rating?

The fact that you filed bankruptcy will be on your credit report for 10 years. However, if you have a lot of debt and are behind on it, then your credit probably isn't very good anyway. Late payments and unpaid debts will stay on your credit rating for 7 years. Filing bankruptcy doesn't necessarily mean you won't be able to get credit during the 10 years afterward. Many companies will lend to people who have filed bankruptcy, but they may charge you a higher interest rate than if you had not.

B & B Law Group PLC can assist with your bankruptcy filing in Maryland and Virginia. This informational does not constitute legal advice nor an attorney-client relationship, and does not intend to solicit business anywhere our attorneys are not licensed. If you wish to discuss your finances and if bankruptcy is right for you, you may call us at 703-594-4900, or see our website at http://www.bblawva.com and http://bandblawgroupfairfax.com.