Bankruptcy FAQ

Kevin R. Holloway

Attorney at Law

287 N. Willo Esque Street

Wichita, KS 67212

Voice and Fax (316) 946-9631

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Answering Common Bankruptcy Questions

          A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems. This brochure cannot explain every aspect of the bankruptcy process. If you still have questions after reading it, you should speak with an attorney familiar with bankruptcy. Substantial changes in bankruptcy law became effective on October 17, 2005, so take care that you are not getting advice from someone who is not familiar with the changes in the law.

What Is Bankruptcy?

          Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

What Can Bankruptcy Do for Me?

          Bankruptcy may 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. It is designed 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. (Bankruptcy does not, however, automatically eliminate 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.

What Bankruptcy Cannot Do

          Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:

• Eliminate certain rights of "secured" creditors. A "secured" creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.

• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some 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.

What Different Types of Bankruptcy Cases Should I Consider?

          There are four types of bankruptcy cases provided under the law:

• Chapter 7 is known as "straight" bankruptcy or "liquidation." It requires a debtor to give up property which exceeds certain limits called "exemptions", so the property can be sold to pay creditors.

• Chapter 11 , known as "reorganization", is used by businesses and a few individual debtors whose debts are very large.

• Chapter 12 is reserved for family farmers.

• Chapter 13 is called "debt adjustment". It requires a debtor to file a plan to pay debts (or parts of debts) from current income.

          Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.If your income is above the median income for a family the size of your household in your state, you may have to file a chapter 13 case (the national median family income for a family of 4 in 2004 was approximately $63,012--your state's figures may be higher or lower). A higher-income consumer must fill out "means test" forms requiring detailed information about income and expenses. If, under standards in the law, the consumer is found to have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that the consumer can not file a chapter 7 case, unless there are special extenuating circumstances.

Chapter 7 (Straight Bankruptcy)

          In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for "exempt" property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.

          If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

          If you earn above the median income for your state and your debt is primarily consumer as opposed to business debt, then to stay in Chapter 7 you will have to pass a means test that compares your income to expenses as determined by the government.

Chapter 13 (Reorganization)

          In a chapter 13 case you file a "plan" showing how you will pay off some of your past‑due and current debts over time, usually over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property‑‑especially your home and car‑‑which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.

You should consider filing a chapter 13 plan if you:

• own your home and are in danger of losing it because of money problems;

• are behind on debt payments, but can catch up if given some time;

• have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

You will need to have enough income in chapter 13 to pay for your necessities and to keep up with the required payments as they come due.

 

What Must I Do Before Filing Bankruptcy?

           You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you will need to file with the bankruptcy forms in your case a certificate from the agency stating that you received the counseling.

          If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. And being an "approved" agency for bankruptcy counseling is no guarantee that the agency is good. It is also important to understand that even good agencies won't be able to help you much if you're already too deep in financial trouble.

          Some of the approved agencies offer debt management plans (also called DMPs). This is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. It is important to keep in mind these important points:

• Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you.

• If you sign up for a debt management plan that you can't afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case).

• There are approved agencies for bankruptcy counseling that do not offer debt management plans.

          It is usually a good idea for you to meet with an attorney before you receive the required credit counseling.

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Holloway Law Offices
287 N. Willo Esque Street
Wichita, KS 67212
Phone and Fax: (316) 946-9631

I am a federally designated debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code.

Located in Wichita, Kansas, the Holloway Law Offices provide bankruptcy services to clients in all of Kansas west of I-135 and in all parts of Eastern Kansas south of I-70.