Learn more about your chance to get a fresh financial start.
What Are the Different Types of Bankruptcy?
Will the Court Take My Property Away?
Will I Have to go to Court?
Do I Have to List All My Debts?
If I am Married, Can I Still File by Myself?
What Happens to my Co-Signers?
Can I Discharge Every Debt?
Will Bankruptcy Help Me to Lower My Payments?
What Happens to My Credit?
What About Garnishments, Repossessions and Foreclosures?
What About Past Due Taxes?
Can Student Loans be Discharged?
WHAT ARE THE DIFFERENT TYPES OF BANKRUPTCY?
There are several types of bankruptcy including Chapter 7, Chapter 13, Chapter 11 and Chapter 12. Most individuals who file bankruptcy file a Chapter 7. A few individuals file a Chapter 13. The laws governing all bankruptcies are complex. You should obtain expert help.
In a Chapter 7 bankruptcy, most debts are canceled completely. This is called a "discharge." Medical bills and unsecured loans (like credit cards) can usually be eliminated or "discharged" in full. Once a debt is discharged, the creditor is forever prevented from taking any action to collect the debt. Bankruptcy laws provide for certain exemptions. If the value of your equity in your property is less than the exemption amount, you will be allowed to keep it. If the value of your equity in your property is more than the exemption amount, you might be forced by the court to turn it over to the bankruptcy trustee who will sell it and use the money to pay on your debts. Normally, you will be able to keep all of your property. The rules are different for secured loans, such as homes, cars, boats, RVs etc. With some minor exceptions, you must either pay for the collateral that secures the loan or give it back to the creditor.
In a Chapter 13 bankruptcy, you basically consolidate your unsecured debts and make one payment to the bankruptcy court for a period of 3-5 years. A small amount of the money you pay to the court is used for court expenses; the remainder is used for payment to your creditors. Any balance of your dischargable debts which remains after the end of the 3-5 years is discharged. A Chapter 13 bankruptcy may allow the debtor to keep property where its value exceeds the exemption amount. It can also allow the debtor to pay past due payments on a house or a car and still retain the property. Sometimes, secured creditors can be forced to accept less than the full balance owed if the collateral is worth less than the amount owed. The most recent bankruptcy laws passed in 2005 make filing a Chapter 13 very complex. This is an area where you must have expert legal advice.
WILL THE COURT TAKE MY PROPERTY AWAY?
It is exceedingly rare for property to be taken away in a bankruptcy. Virginia has laws called "exemptions" which means "protections" which allow bankruptcy debtor's to keep their property most of the time. This includes vehicles, homes, and personal effects and furniture.
If property has TOO much value, they may be at risk in one kind of bankruptcy, but NOT the other. Speaking with an experienced bankruptcy attorney that thinks outside of the box is crucial to protecting your property. Call to make your appointment TODAY. It's free and there's no obligation. The the facts as they pertain to YOU.
WILL I HAVE TO GO TO COURT?
You will have to attend a MEETING, but it is not "court" with a judge in a courtroom. You will meet with your case administrator, called a "Trustee," about a month after filing. Most of the bankruptcy work is preparation for this meeting. At Zwerdling, Oppleman & Adams, we take great care to make sure our files are organized, and that the Trustee has all required documentation weeks before the meeting.
DO I HAVE TO LIST ALL MY DEBTS?
We probably all have certain creditors that we do not want to see get "hurt" by any inability we have to pay our debts. However, bankruptcy law requires that you list every debt, even those to close friends and relatives. Bankruptcy law provides that, under some circumstances, the debt will still be discharged even if it is accidentally not listed. However, there are some situations in which the debt might not be discharged if it is not listed. Also, one of the disadvantages of not listing the debt is that the creditor will not be notified by the court. If the creditor is not notified, the creditor almost always thinks that the debt is not discharged and will continue to harass you after your bankruptcy is completed. LIST ALL DEBTS! The good news is that it is possible to amend your bankruptcy petition if you forget to list a creditor. The bad news is that there are additional attorney fees and court fees to do so. If you are in doubt about whether you owe a creditor money or think that the debt is one that cannot be discharged, list it anyway.
Sometimes it is difficult to remember who all of your creditors are. It is better to list a creditor that you are unsure about than to leave the creditor out. We INCLUDE obtaining a credit report form ALL THREE BUREAUS. However, all of your debts may not be listed on a credit report so you still need to do some thinking of your own.
IF I AM MARRIED, CAN I STILL FILE BY MYSELF?
Yes. Married persons can file together, by themselves, or not join in with their spouse in filing for bankruptcy. Only the liability of the person filing is discharged, so if your spouse is obligated on the debt, and your spouse decides not to file, your spouse will still be liable on that debt. Even though your spouse may not file with you, unless you and your spouse do not live together, you will be required to list the income of your spouse to arrive at a "household income." This will have an impact on whether you will file a Chapter 7 or a Chapter 13 bankruptcy.
WHAT HAPPENS TO MY CO-SIGNERS?
Filing a bankruptcy petition discharges the debt only as to the person filing. Creditors sometimes require cosigners to add some additional safeguards and to protect them from bankruptcy filings. If your debt is discharged, the creditor will most likely go after the cosigner. The only way to protect against that situation is to continue to pay the debt after the bankruptcy is finished or to file a Chapter 13 bankruptcy and pay the debt through the bankruptcy.
CAN I DISCHARGE EVERY DEBT?
No. There are some debts that cannot be discharged under any circumstances such as child support, alimony, any debt owed as a result of drunk driving, and criminal restitution.
You cannot discharge a debt where fraud was present or where there was a willful or malicious injury. An example of fraud would be where you gave false information on a credit application and the creditor granted you a loan based upon the false information. Another example would be where you made a large purchase or obtained a large cash advance on a credit card knowing that you were having financial problems and would have difficulty repaying the debt. Generally, you cannot discharge old taxes unless it has been more than three years since you filed your tax return for that year. Student loans present particular problems because the government has tightened the rules considerably over the past several years. To discharge a student loan requires that you sue the government and prove, among other things, that if you were required to repay the loan, it would create an "undue hardship" for you. Lawsuits against the government are very expensive so you should probably approach filing bankruptcy knowing that you will end up having to repay the student loan. The government now has programs that will allow you to repay the loan over as many as 30 years. The result is low payments over a long period of time.
In a Chapter 13 filing, you can discharge tax debts at the end of the 3-5 year period even if you did not file a tax return
The rules regarding the elimination of debts in bankruptcy are complicated. You should consult with an expert in bankruptcy before filing.
WILL BANKRUPTCY HELP ME TO LOWER MY PAYMENTS?
A Chapter 7 bankruptcy is used primarily to eliminate debts - it will help you to lower your payments only if you can "cram down" the balance of the loan to the value of the collateral and pay off the loan in full by obtaining a new loan with smaller payments. In bankruptcy lingo, this is called "redemption." For a vehicle, the loan must be more than approximately 2 1/2 years old. For other personal property, the loan must be more than one year old. However, in a Chapter 13 filing, you can force your creditors to rewrite some of the terms of a secured loan. You can force the creditor to reduce the balance to equal the value of the collateral. You can also force the creditor to lower the interest rate and force the creditor to allow you to catch up on past due payments over the 3-5 years that you make your payments to the court. This may all sound very confusing; schedule a free consultation today to see if you can restructure your vehicle loan to pay less interest, and less per month!
WHAT HAPPENS TO MY CREDIT?
The fact that you filed bankruptcy will, most likely, show up on your credit report. It can remain there for a maximum of 10 years. Although the filing of bankruptcy is a negative on your credit report, in many cases, it actually improves the credit report over what is was just prior to filing. Most people, by the time they come to us already have a credit report that shows defaults, delinquent payments and "charge offs." Many lenders will give consideration to a new loan after you have filed bankruptcy because you owe very little, if any, debt and the lender knows that you cannot file again for several years.
Many clients who come to us are embarrassed by their financial situation. To them, filing bankruptcy is the last thing they want to do. However, those clients are almost always feeling severe stress in the family. Once we explain to them that Congress has established bankruptcy laws to provide a fresh start for individuals and that they will feel that a huge burden has been lifted from their shoulders, they exhibit feelings of relief. You, too, will realize that we are not here to be judgmental but to provide assistance which will make your life better.
WHAT ABOUT GARNISHMENTS, REPOSSESSIONS AND FORECLOSURES?
Immediately upon the filing of a bankruptcy petition with the court, an "automatic stay" is created. This automatic stay provides that creditors are not to take any further legal action against you without special permission of the court. For example, if a creditor is garnishing your wages, the automatic stay created by filing a bankruptcy petition prevents further wage garnishments. Also, if a foreclosure sale on your house has been scheduled, the automatic stay will stop the foreclosure sale and give you more time to sell the home and recover your equity or provide for paying the past due payments through a Chapter 13 plan. It has not been uncommon for clients to come to us where a garnishment or foreclosure is scheduled within 3-4 days. In those circumstances, same-day or next-day filing can be accomplished, thus creating the automatic stay and avoiding further financial loss.
WHAT ABOUT PAST DUE TAXES?
The bankruptcy code is a federal law. It is not surprising to find that Congress has given special protection to past due taxes. The rules for discharging taxes are some of the most complex in the bankruptcy code. Expert advice is necessary.
Under a Chapter 7, the tax must be at least 3 years old to have it discharged. Also, the time for beginning the calculation of the age of the tax may not be the year in which the tax was due. For example, let's take the tax year 1998. Your return for that year was due no later than April 15, 1999. Three years from April 15, 1999 would be April 15, 2002. If you filed your return on time and owed taxes for that year, those taxes would be dischargeable. However, if you did not file your return for 1998 until January 1, 2005, the 3 years would not be up until January 1, 2008 and the tax would not be old enough to discharge until 2008. Frequently, if you do not file a return, the IRS will "file one for you." Although this is not technically a real tax return, it does establish a tax debt. Unfortunately, in a Chapter 7 filing, you are required to file a return before any tax can be discharged. The IRS filing one for you will not count.
The rules are different in a Chapter 13 filing. You are not precluded from discharging a past due tax if you did not file the return. However, before a Chapter 13 plan will be approved, you will be required to file all tax returns that should have been filed as of the date you filed your bankruptcy petition.
As with all other debts, the filing of a bankruptcy petition will stop the IRS or the Virginia Department of Taxation from taking any further collection action for at least a short period of time. If you qualify for a Chapter 13 filing, you may have up to 5 years to pay the past due taxes without any further penalties being assessed.
The information above is intended only to give you a general idea of what is involved in discharging taxes. As you can see, the rules are very technical and require expert legal advice.
CAN STUDENT LOANS BE DISCHARGED?
Yes, but it is not easy. It will also, probably, be expensive. Once upon a time, federally guaranteed student loans were dischargeable if the loan was more than 7 years old. In 1998, the federal government changed all that. Now, federally guaranteed student loans cannot be discharged unless you can prove that being required to repay the loan will cause an undue hardship - not just a hardship, but an "undue" hardship. To have an opportunity to prove your case, you will be required to sue the federal government in bankruptcy court through an adversary proceeding. You will be required to prove all of the following:
1. repayment of the loan would prevent you from maintaining a minimal standard of living
2. your financial circumstances are not likely to change in the foreseeable future
3. you made a good faith effort to repay the loan before you became unable to pay
Frequently, the federal government will try to show that you could get a reduced payment plan by going through a consolidation program that will stretch out your payments for 20 years or more based upon an "ability to pay."
In short, it is possible to discharge a student loan, but the government has made it very difficult. Also, remember that the government has a raft of lawyers to defend the federal government in the lawsuit who are paid for by your taxes. On the other hand, you will be required to pay for your attorney.
Broad Street Bankruptcy Clinic
5020 Monument Avenue
Richmond, VA 23230
804-355-3303 * 804-355-5719