What is bankruptcy?
Bankruptcy is the legal method for a debtor to discharge or relieve debt. Bankruptcy is a way for people or businesses that 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. While no debtor is guaranteed a total discharge, most debtors who file for bankruptcy are given such relief.
One of the primary purposes of the bankruptcy code is to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start. A bankruptcy case is initiated by the filing of a petition for relief. Once the petition is filed, an automatic stay goes into effect preventing creditors from taking any collection action against the debtor, including harassing phone calls, collection letters, lawsuits and wage garnishments.
Who can file for bankruptcy?
Any person, partnership or corporation may file bankruptcy, although Chapter 13 bankruptcy is limited to individual debtors.
What debts may be discharged?
In a Chapter 7 bankruptcy most debts can be eliminated, including credit cards, medical bills, personal loans, repossession debt and most judgments. The types of debts that cannot be eliminated in Chapter 7 include student loans, child support, fraud, certain taxes and certain debts arising from personal injury to others.
Will I lose my home if I file for bankruptcy?
If you file Chapter 7 bankruptcy, you could lose your home if you have more equity than the law allows you to protect. You could also lose your home if you are unable to maintain your mortgage payments.
In order to determine whether you risk losing your home, you must first ascertain the fair market value of your home and then find out how much you owe your mortgage company. The difference between the fair market value and the mortgage balance is your equity. If the equity exceeds the homestead exemption, you risk losing your house in a Chapter 7.
The homestead exemption in Kentucky is $22,975.00 per person. In Indiana, it is $19,300.00 per person. If you own your house jointly with your spouse, those figures are doubled. If you run the risk of losing your home, you may want to consider Chapter 13, where you do not ordinarily lose any property.
Will I lose my car and furniture if I file for bankruptcy?
Probably not. Each state has laws that determine which items or property are exempt from being taken away. Most people who file bankruptcy do not lose those items, but it depends on their value and the exemptions allowed in the state in which you file bankruptcy.
Will filing for bankruptcy affect my credit rating?
Yes. However, most individuals are able to rebuild their credit within a few years. If you are currently contemplating bankruptcy, then it is likely that your current credit rating has already been affected. A discharge of your current debt may provide the opportunity to rebuild your credit with steady, regular payments on a new account.
How long will bankruptcy stay on my credit report?
The Fair Credit Report Act, 6 U.S.C. Section 605, is the law that controls credit reporting agencies. The law states that credit reporting agencies may not report a bankruptcy case on a person's credit report after ten years from the date the bankruptcy case is filed. Other bad credit information is removed after seven years.
The larger credit reporting agencies belong to an organization called the Associated Credit Bureaus. The policy of the Associated Credit Bureaus is to remove Chapter 13 cases from the credit report after seven years to encourage debtors to file under these chapters.
When will my creditors stop calling?
Once the petition is filed, an automatic stay goes into effect, which legally protects you from creditor calls and other collection action.
How much does it cost to file for bankruptcy?
The court filing fee for Chapter 7 is $335.00, Chapter 13 is $310.00 and in most cases, this fee must be paid up front to the bankruptcy court. In the case of an emergency, a Chapter 13 petition can sometimes be filed for less than the full amount up front. The amount of your legal fees and payment arrangements are based upon the facts of your particular case.
Will I need to go to court?
Yes. You will need to attend what is called a 341 Meeting of Creditors, which your attorney will attend with you. At this meeting, you will be examined by a trustee and any creditors which have questions. However, creditors rarely attend these meetings.
Can my bankruptcy be denied?
Yes. There is a provision of the Bankruptcy Code that allows a Chapter 7 case to be dismissed if the court finds that it would be a substantial abuse to allow the case to proceed. There are many factors involved, but the primary focus is on disposable income.
If the debtor has sufficient disposable income to pay some of his/her debts back, he/she may not be permitted to file Chapter 7, but rather, may need to file Chapter 13 and pay some of the debt back.
What is Chapter 13?
Chapter 13 is a court supervised repayment plan of your debts. Under a Chapter 13, your debts are consolidated and you make payments to a trustee, who in turn disburses money to your creditors.
Under Chapter 13, you make payments over a three to five year period of time and pay back either some or all of your debt. How much of your debt you must pay back depends on a number of factors, including, your income, your monthly living expenses and how much property you own.
What is the advantage of Chapter 13 over Chapter 7?
If you have too much equity in your home or other property to protect with a Chapter 7 filing, you may be able to protect those items with a Chapter 13 filing. Also, if you are in arrears on your secured debts, like your home or auto, you may be able to avoid foreclosure or repossession, which may not be possible with a Chapter 7 filing.
In addition to this, certain debts, such as taxes, which are not dischargeable in Chapter 7, may be dischargeable with a Chapter 13. Finally a Chapter 13 leaves the option open for you to file a Chapter 7 at a later time.
Contact Kruger & Schwartz
To schedule your free initial consultation with one of our skilled bankruptcy attorneys, call our Louisville, Kentucky, office at 502-485-9200, our New Albany, Indiana, office at 812-945-9200 or toll free at 866-366-3328. You may also send us an email.