Frequently Asked Questions

Bankruptcy is the legal method for a debtor to discharge or relieve debt. It is a way for people, who owe more money than they can pay, to either work out a plan to repay the money over time or to have their debt wiped out. One of the primary purposes of bankruptcy is to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start.

Chapter 7 bankruptcy is also known as liquidation. In Chapter 7 bankruptcy, you are allowed to keep certain "exempt" property. If there is any property that is not exempt, a trustee will take over those assets and reduce them to cash to make distributions to your creditors. In most cases, there will not be a liquidation of your property because there is usually little or no non-exempt property. Therefore, most people who file Chapter 7 are able to keep all of their property.

In just a few months after filing Chapter 7, you will receive a discharge. A discharge releases you from personal liability for most debts and prevents the creditors owed those debts from taking any collection action against you.

Generally, people file Chapter 7 if they have a large amount of unsecured debt, such as credit cards and medical expenses, which they are no longer able to pay. Often unemployment, unexpected medical expenses, or divorce cause a person to seek protection from creditors by filing Chapter 7.

Chapter 13 bankruptcy enables individuals with regular income to develop a plan to repay all or a portion of their debts. In Chapter 13, you propose a repayment plan to make installments to creditors over three to five years. During this time, the law forbids creditors from starting or continuing collection efforts.

Chapter 13 may offer individuals a number of advantages over Chapter 7. Perhaps most importantly, Chapter 13 will allow you to keep valuable property - - especially your house and car - - which might otherwise be lost.

If three or more of the following apply to you, you should meet with us to discuss filing bankruptcy:

• Collections agencies are calling you
• Credit card debts over $5,000.00
• More than two unpaid medical bills
• A foreclosure or other lawsuit is filed against you
• You are getting threats of a foreclosure or your mortgage company returned payment to you
• You have been given a notice of sheriff's sale
• Your car or other property has been repossessed
• Payments are more than one month behind on more than one bill
• Your mortgage/rent is late or behind
• You use cash advances/check cashing services
• You buy necessary items on credit
• You are late on payments and are 'Robbing Peter to pay Paul'
• Your balances are not getting down even though you make payments
• Facing or threatened with wage attachment or bank garnishment
• Facing or threatened with utility shut-off
• You owe income taxes or other taxes

• Gives you a fresh start
• Get rid of as many bills as possible
• Stops all calls and letters from bill collectors
• Stops car repossession
• Stops wage attachment
• Stops bank garnishment
• Stops interest on credit cards
• Stops lawsuits
• Allows you to get caught up on house and car payments
• Gets you out of car leases or other purchase contracts
• Protects your property from attachment or garnishment
• Clears up past utility bills
• Relieves anxiety
• Helps restore peace of mind

Student loans generally cannot be discharged. Student loans can only be discharged if you are able to establish an "undue hardship" by proving to the court that ALL of the following:

• You cannot maintain, based on your current income and expenses, a minimal standard of living for you and your dependents if forced to pay the loans;
• Additional circumstances exist indicating that your state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
• You have made a good faith effort to repay the loans.

The above "undue hardship" test is usually applied very narrowly by the courts, making it nearly impossible to discharge student loans in bankruptcy.

Generally, federal and state income taxes cannot be discharged. However, they can be discharged if ALL of the following conditions are met:

• The tax must be owed at least 3 years after the tax return was due. For example, 2008 taxes are due on April 15, 2009. To pass the test, the bankruptcy must be filed after April 15, 2012.
• The tax return must have been filed more than 2 years before filing bankruptcy. For example, the tax return for 2006 taxes was filed until June 1, 2010. To pass the test, the bankruptcy must be filed after June 1, 2012.
• The tax must have been assessed more than 240 days before filing bankruptcy. For example, the 2007 tax return did not accurately reflect all the tax that was due. On June 1, 2009, the IRS assessed additional tax after discovering the mistake. To pass the test, the bankruptcy must be filed after 240 days from June 1, 2009.
• You must not have made a fraudulent return or willfully attempted to evade or defeat the payment of the tax.

Not every kind of debt can be erased through bankruptcy. The good news is that, once your other debts are discharged in Chapter 7 or restructured or reduced in Chapter 13, you will have a lot more money to service your remaining debts and payments. If you are dealing with any of the following types of debt, chances are that you are going to end up having to pay them after your bankruptcy is discharged:

• Debts incurred through the commission of fraud.
• Income taxes for tax debt less than three years ago.
• Debts incurred through commission of willful and malicious injury.
• Student loans, unless an undue hardship can be shown.
• Spousal or child support.
• Death or personal injury caused while intoxicated.
• Fines and penalties owed to the government.
• Criminal fines and restitution.

NO! This is one of the biggest misconceptions. It is best to come it as soon as you think you may need some financial relief. It is best to know your options in the event you do decide to file. You can make a decision later and be confident it is the right decision. The initial consultation is free, so you have nothing to lose.

There is no clear answer to this question, but bankruptcy can actually become a tool to rebuild your credit. Usually, by the time you consider filing, your credit may already be ruined. Bankruptcy will put you in a position to redeem your credit and give you a fresh start. Bankruptcy could stay on your credit report for 10 years, but there are steps to lessen its impact on your credit score. Paying your bills on time and in full every month is a good start. A secured credit card, which limits your available credit to the amount of your initial deposit, is sometimes a good option following bankruptcy. Establishing a history of using credit wisely over time will show banks and other lenders that you are a good credit risk. Generally, two to three years after receiving a discharge, you can be eligible for mortgages or car loans with terms as good as those available to someone who never filed bankruptcy. And, in some instances, bankruptcy can actually improve your credit.

Yes. Most banks offer "secured" credit cards where a customer deposits certain amount of money in an account to guarantee payment of the credit card. Usually, the credit limit is equal to the security given and is increased as the customer proves his or her ability to pay the debt.

Two years after discharge, people who have filed for bankruptcy are eligible for mortgage loans with terms equal to people with the same financial profile who have never filed for bankruptcy. At that point - - just like everybody else - - the amount of your down payment and the specifics of your income will be much larger factors in the approval process than your past bankruptcy.

Remember, most institutions will actually view you as a better credit risk than before because they know you have little debt and that you cannot file for bankruptcy for a certain amount of time.

Debt settlement programs promise to reduce your debt by negotiating with your creditors for a fee. On the surface, debt settlement does not sound so bad. However, creditors do not typically settle debts until the debt is a few months past due. That means you have to stop paying your accounts for a few months. Meanwhile, late payments are reported to the credit bureaus, your credit score drops, and you might begin receiving collection calls. Additionally, debt settlement programs only work if (1) your creditors are willing to be involved and (2) your debt is the type of debt that the program deals with. Most debt settlement companies deal only with companies they have agreements with. There is no guarantee that these programs will work. Even if the debt settlement company successfully settles with your creditors, the delinquent information is not erased from your credit report. Instead, your account is updated as "Charged-Off" or "Paid-Settled", neither of which is as good as a "Paid in Full" account. After debt settlement, it may take a few months or even a few years to be approved for credit. More often than not, people who enroll in these programs are put in a worse position and have to file bankruptcy anyway.

In most cases, you will need to appear before a bankruptcy judge. However, you will have to attend a proceeding called a meeting of creditors. The meeting of creditors is automatically scheduled for 20 to 50 days after your case is filed, and your attendance is mandatory. The meeting of creditors - - sometimes called a 341 meeting because it is mandated by § 341 of the Bankruptcy Code - - is an opportunity for your case trustee to question you about your financial situation while you are under oath. Your creditors also receive notice of the 341 meeting and are allowed to attend. However, they hardly ever do.

We do not have a set fee for bankruptcy. We believe that, when an attorney has set fee, half of the clients are going to be overcharged and pay for the work of those who are undercharged. Therefore, you will need to schedule a free consultation for us to review the simplicity/complexity of your specific case. In some cases, attorney's fees are deferred.

This is a very common question. The answer if fairly simple: instead of paying on your debts, you can use the money to pay for filing bankruptcy. However, before you stop paying, you need to schedule a free consultation to determine which debts to stop paying.

You cannot receive a discharge in a Chapter 7 case if you received a discharge in either (1) a Chapter 7 bankruptcy filed within the last 8 years or (2) a Chapter 13 bankruptcy filed within the last 6 years.

You cannot obtain a discharge in a Chapter 13 case if you either (1) obtained a discharge in a Chapter 7 filed within the past 4 years or (2) obtained a discharge from a Chapter 13 case filed within the last 2 years.

In some instances, you can benefit from a bankruptcy even though you cannot receive a discharge. For example, you can save your home from foreclosure without receiving a discharge.

No. Federal law prohibits employers from firing an employee or discriminating against an applicant because they have filed bankruptcy. If an employer does a financial background check, that check will reveal whether you have filed bankruptcy. Your best bet is to be honest with the prospective employer up front. Tell them you have filed bankruptcy and, if you feel comfortable, tell them why. In most cases, employers are using background checks to gauge whether a candidate is honest and trustworthy, not whether they have had a financial rough spot in the past.

The free initial consultation takes as long as necessary to make sure you understand your options. Unlike a lot of attorneys who get you in and out as quickly as possible, we typically spend one hour with each client. In some cases, we have spent as much as two hours with a client at the free initial consultation. We do not give our clients the "bums rush". We take the time necessary to make certain that you understand all of your options. And, unlike a lot of firms, you will meet with an actual attorney, not a paralegal or administrative employee.