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 information cannot explain every aspect of the bankruptcy process. If you have questions after reading it, please call our offices at 520-452-9022. We are happy to schedule a free consultation, answer any questions you may have and explain the process to you in a way that will be easy to understand.
What Is Bankruptcy?
Bankruptcy is a legal proceeding in which people who cannot pay his or her bills ca 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. Under certain circumstances 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, student loans, court restitution orders, criminal fines, and some taxes;
• Protect cosigners on your debts. When a relative or friend has cosigned 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 Does It Cost to File for Bankruptcy?
• $335.00 to file a Chapter 7 bankruptcy, whether for one person or a married couple;
• $310.00 to file a Chapter 13 bankruptcy. Attorney fees are not included in these amounts.
What Property Can I Keep?
In a Chapter 7 case you can keep all property which the law says is "exempt" from the claims of creditors. In Arizona exempt property includes:
• Family Residence $150,000 in equity
• Household Goods $6,000
• Wearing Apparel $500
• Engagement/Wedding Rings $2,000
• Pension Plan Unlimited
• One Motor Vehicle $6,000 in equity
In joint cases the amounts are doubled except for your home. In determining whether property is exempt you must keep a few things in mind. The value of property is not the amount you paid for it but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.
You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own' a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it.
While your exemptions allow you to keep property even in a Chapter 7 case your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind.
In a Chapter 13 case you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn't file bankruptcy.
Also, bankruptcy law does not allow you to keep any tax refunds that are received after your bankruptcy petition is filed with the court. All refunds must be turned over to your bankruptcy trustee who will determine if any of the refund should be returned to you.
What Will Happen to My Home and Car If I File Bankruptcy?
In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it if you pay its non-exempt value to creditors in Chapter 13.
However, some of your creditors may have a "security interest" in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don't make your payments on that debt the creditor may be able to take and sell the home or the property during or after the bankruptcy case.
There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor you may be able to challenge the debt. You may be able to keep your property without making any more payments on that debt if you put up your household goods as collateral for a loan, other than a loan to purchase the goods.
Can I Own Anything After Bankruptcy?
Yes! Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed.
However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy that money or property may have to be paid to your creditors if the property or money is not exempt.
Do I Have to Include All My Debts in A Bankruptcy?
Yes! You must include everyone in your bankruptcy papers to whom you owe money. If you leave out one of your creditors you may have to pay the money to that creditor or you may lose your right to file bankruptcy. It may also be considered a crime if you intentionally give false information or leave out information.
Will Bankruptcy Wipe Out All My Debts?
Yes, with some exceptions. The debts Bankruptcy will not normally wipe out include:
• Money owed for child support or alimony, fines and some taxes;
• Debts not listed on your bankruptcy petition;
• Loans you got by knowingly giving false information to a creditor who reasonably relied on it in making you the loan;
• Debts resulting from "willful and malicious" harm;
• Student loans owed to a school or government body unless the court decides that payment would be an undue hardship. This requires a separate law suit and is the subject of an additional fee;
• Credit obtained under false pretenses, representations or actual fraud.
• Mortgages and other liens which are not paid in the bankruptcy case, but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor.
Are Credit Card Debts Discharged?
Like the sinners in Dante's Inferno, credit card discharge ability cases can be classified by various levels of the debtor's culpability.
The worst level of discharge ability hell is reserved for those who go on a spending spree for frivolous luxury purchases intending to discharge those obligations in bankruptcy. Virtually all courts would exempt these debts from discharge.
A rung above is the debtor who subjectively knew he could not pay but didn't care. He may not have consciously intended not to pay the debts, now or in the foreseeable future. Here, many courts -but not all- would exempt the debt from discharge. Some would blame the creditor for making credit too available.
The next level is comprised of debtors guilty of little more than unrealistic optimism: people who honestly, but unrealistically, hoped that their ship would come in and they'd be able to pay their debts. Until recently, most courts would have lumped these people, with those who had no particular intention of paying, but things have changed. Not surprisingly, the bulk of published opinions involve this type of "sinner," and the results, which appear to be irreconcilable at first (and perhaps second, third and fourth) blush, can be divided into two groups: Those where the court applies an "objective" reasonable person test to determine if the debtor knew he lacked the ability to pay; and those which applied a "subjective" test to determine whether the debtor truly, but unreasonably, believed he could pay. Courts taking the former approach usually hold the debt non-dischargeable; those applying the latter typically discharge the debt.
Cases where the debtor uses credit for gambling nicely illustrate the difference between the objective and subjective tests. Some cases hold that even an honest belief that a winning streak is just around the corner does not constitute an intent to pay because no reasonable person would think he could solve his financial problems by winning the jackpot. However, courts using a subjective test find an intention to pay if the debtor truly thought he would win and be able to pay his debts.
What Is A Reaffirmation Agreement?
Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the Court. This office must certify that the reaffirmation does not impose an undue hardship upon you or your dependents.
Reaffirmation Agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements:
• Must be voluntary;
• Must not place too heavy a burden on you and your family;
• Must be in your best interest;
• Can be canceled anytime before the Court issues your discharge or within 60 days after the agreement is filed with the Court, whichever gives you the most time. If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or a mortgage. The creditor can also take legal action to recover a judgment from you.
What Happens to My Bank Account?
You are able to exempt (keep) $300.00 of money on deposit in your bank account. ($600 in a joint case.) If you are over the exempt amount on deposit on the day the bankruptcy petition is filed with the court, it may be taken by your bankruptcy trustee to help pay your debts.
If you owe money to a bank, it will be able to offset (keep) the money you have on deposit when you file your bankruptcy petition. Therefore, prior to the filing of your bankruptcy petition, you should either close the account or draw it down to a zero balance. If you owe money to your bank, we recommend that you open a new account at a bank that you have had no relationship with. You should also stop any automatic deposit (pay check sent to bank by employer) and any automatic debits (payments taken from your account) prior to the filing of the bankruptcy petition. Otherwise, you may also lose these funds.
Will I Have to Go to Court?
In most bankruptcy cases, you only have to go to a proceeding called the "meeting of creditors" to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Your attendance at this meeting is required. Your failure to attend will result in the dismissal of your bankruptcy case.
Occasionally, if complications arise or if you choose to dispute a debt, you may have to appear before a judge at a hearing. If you need to go to court, you will receive notice of the court date and time from the court and or from your attorney.
Will Bankruptcy Affect My Credit?
There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse.
The fact that you have filed bankruptcy can appear on your credit record for ten years. Since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current, bills, and you may be able to get new credit.
What Else Should I Know?
Utility services -- Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after' bankruptcy is filed.
Discrimination -- An employer or government agency cannot discriminate against you because you have filed for bankruptcy.
Driver's License -- If you lost your license solely because you couldn't pay court ordered damages caused in an accident, bankruptcy will allow you to get your license back.
Co-signers -- If someone has cosigned a loan with you and you file for bankruptcy, the co-signer may have to pay your debt.
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Considering filing Bankruptcy in Cochise County or Santa Cruz County, Arizona? Call the Law Office of Charles N. Kendall today at 520-452-9022 to determine what option might be best for you. Our consultations are always free.
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We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
The Law Office of Charles N. Kendall, Bankruptcy Attorney in Sierra Vista, Arizona and Nogales, Arizona, provide services and benefits under Title 11 of the united States Code.
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