Bankruptcy
Understanding Bankruptcy

The information provided here is not intended to be legal advice and should not be used as a substitution for legal council.

The purpose of this page is to provide you with an insight of the process so you can ask informed questions of your attorney, or, know what to look for if you do your own bankruptcy.

Bankruptcy is a good solution to wipe the slate clean and start over, but it should only be considered as a last result because there are after affects of going through the bankruptcy system that have far reaching and long lasting ramifications, such as it stays on your record for 10 years.

The Bankruptcy Process

The bankruptcy system (courts) operate like a cattle call. You likely will never appear in an actual courtroom. The BK hearings are held in a room at the federal court.

These are called the 341 Creditor's meeting.

The meetings are scheduled hourly. Each hour about five or six cases are scheduled. You'll be called in with the other people. It's an informal room with the bankruptcy trustee assigned to your case sitting at a table at the front. These people are formally known as Panel Trustees.

They are not government employees. They work on a contract basis. They get a percentage of your filing fee, so there is not incentive for them to prolong your case., unless you have wealth and or many physical assets that can be liquidated.

When your name is called, you go to the side table next to the trustee and sit. There are microphones for you to speak into. These are for recording the hearing.

The trustee will ask you some standard questions for the record. Such as your name, address, telephone number, etc. You'll be asked some questions. His/her job is to ask you basic questions, verify the information on your bankruptcy petition, and then approve your plan and you walk away.

Don't try to hide assets or deceive the Panel Trustee. It can get ugly. Also, if you have many assets, protect yourself. See the BK fraud page.

Before you are discharged, you need to prepare yourself and especially protect yourself. First, if your goal is to prevent your home from being sold in a foreclosure auction, you need to know which bankruptcy is best.

Types of Bankruptcy

Before deciding on a BK plan, sit down and crunch some numbers. Determine a plan for pulling out of the hole you dug yourself into. Then go talk to a BK attorney. The new bankruptcy laws force everyone into Chapter 13 first, debt counseling, and then it is decided if you can file a Chapter 7.

Chapter 7 Bankruptcy: Erases all unsecured debts. It is known as a "Discharge." Those are debts that are not liened to your home, boat, or car. You then continue to pay on your secured debts, i.e. home, car, etc. The goal of a BK 7 is to lower your debt to income ratio, so you are not struggling.

Chapter 13 Bankruptcy: is a completely different ball game. It is a repayment plan. One reason for going into a BK13 is to keep your home when you are in foreclosure, or, so far behind in payments, you can't get caught up. BK 13 also has a provision for reducing unsecured debts. The repayment plan last three to five years. It puts all arrearages into the plan, and then you begin paying payments to your lender, while also making payments to the trustee in the plan.

Recommendations

Don't rely strictly on the advice of the first attorney you speak to, or, even the second one. Consult with at least five (5) attorneys. No two attorneys think a like. They'll each have different experiences to bring to the table. Keep your ears open to learn. Never tell any of them that you have seen other attorneys. Approach each consultation like its the only one you have had.

• Take a note pad and keep notes on what the attorney tells you.
• Also take a list of the questions you need answered.
• Make notations about the attorney's appearance, condition of his/her office; and are they organized and clean.
• Note their demeanor. How well they communicated with you.
• Did they fully explain the process and what to expect and what their role will be?
• Did they explain to you what to expect and what life will be afterwards?

Shop for a good litigating bankruptcy attorney. They typically do not charge more than regular BK attorneys. Definitely make sure they have corporate experience. The reason for this is, if by chance you have a creditor filing legal challenges, you want an attorney that has experience litigating.

Thank the attorney for his time, and tell him you and your spouse need to discuss your options and you'll get back to him/her. After you've interviewed several attorneys, then compare notes and choose an attorney that will best represent your needs. Never forget, they work for you. Don't be intimidated by the process.

You goal is most likely two-fold: Get debt burden off your back and rebuild your life.

Going Solo

If you do not have the money for an attorney, you can go it alone. It is called In Pro Per. It's not complicated. Go to the book store, or, go on a web site to find a Nolo Press Bankruptcy book. It is a work book designed for lay people and will walk you through the entire process. Also, use the Find Law web site for bankruptcy issues.

A large segment of society are being their own representative in bankruptcy court. Most report it began as a financial necessity, but then they realized they preferred the self representation because they had greater control and less problems.

One the most common complaints debtors have is that they cannot get a hold of their attorney, or their attorney bailed on them when things got ugly. BK judges have been heard to grumble about attorneys abandoning their clients.

Remember these two important things:

a) Many BK attorneys are paper preparers. They use a form, put your info on, file it, notify your creditors to stay away, and sit with you at the creditor's meeting while you do all the talking.

b) So, shop for an attorney with actual BK litigating experience. You never know. If your lender decides to file a motion for relief from stay, you'll need a litigate to fight it. The motion for Relief from Stay is a legal action in court, in front of a judge, where the creditor seeks permission to have the bankruptcy stay order removed so they can foreclosure on your home or repossess their car.

Financing a Bankruptcy

BK 7: Requires attorney fees and filing costs up front. That can range around $900 give or take.

BK 13: Partial money up front, typically the filing fee of $500. The attorney costs are added to the plan.

What to Expect During and After BK

Here's some pointers:What to expect while in Chapter 7 bankruptcy.

1. Most credit card companies will do a setoff, which is to wipe it from their books. Some bigger companies, such as Sears or Macy's, have full-time attorneys/negotiators, who appear at your 341 meeting to negotiate a settlement. If you want to keep some items, negotiate with the creditor for a price, such as 10 cents on the dollar. You agree to pay the creditor the negotiated amount. What happens then is in the BK papers its noted as assets you'll retain.

Be sure to get the deal in in writing. Some lenders, such as car or home loans, will try very hard to get you to reaffirm the loan. You are NOT legally required to do so. Talk to your attorney about it. But basically what the reaffirming does is keep you from using the bankruptcy court in the future to discharge the debt.

Example: You don't reaffirm the loan. Months after the BK, you still can't get back on your feet. You decide to give up. You call the lender to surrender the asset. But the lender wants to sue you for the difference of what the asset is sold at auction and what you owe. You can reopen your former BK and amend it to add the debt and discharge it. If you had reaffirmed the debt, you would not be able to discharge it. The flip side of the reaffirming is that you may be able to renegotiate the terms of the loan to a lower payment, or lower interest rate, so that you can live with the payments. Its a win win for all. Whichever you decide, these are things to discuss with an attorney.

2. As long as you have not done an unlawful act, you should be able to discharge your debts. Rarely do creditors bother to appear at the meetings or challenge you. Only your lender will be dogging you.

Here's what to expect with Chapter 13

Chapter 13 bankruptcy is the wage earner's plan. If you have regular income to develop a plan to repay all or part of their debts, you can pay them over three to five years.

If your current monthly income is less than the state median, the plan will be for three years unless the court approves a longer period "for good cause." If the debtor's current monthly income is greater than the applicable state median, the plan generally must be for five years.

Chapter 13 offers you the ability to save your home from foreclosure by stopping the foreclosure, so you can cure delinquent mortgage payments over time. This requires to you make the monthly payment and a payback payment.

You can use the following income to fund a Chapter 13 plan: