Bankruptcy FAQs
General Answers to Common Questions

Can Filing Bankruptcy Help Me?

When a person becomes unable to pay their debts as they come due, whether because of health problems, divorce, job loss, lack of financial planning, or other causes, creditors become very impatient. Often at the first sign of financial trouble, creditors increase interest rates, late fees and other penalties, usually adding to the problem. If you are unable to pay, your creditors may decide to take you to court and get a judgment against you. This gives them the ability to take (or “garnish”) your paycheck and your bank account, or take your home or other property. This often results in one creditor getting paid at the expense of all the others, leaving nothing for you or your family. For many people, this cycle could go on for years without some way out.

Bankruptcy exists as way to resolve this stressful, chaotic, no-win situation. It ensures that you pay whatever portion of your debts you can, and much of cannot be paid is discharged. In most cases, the creditors receive nothing and the entire debt is discharged. This is a huge benefit. A bankruptcy discharge means that your creditors can no longer do anything to make you pay what you owed them. On the other hand, it does not do anything to keep you from voluntarily paying a debt sometime in the future when your situation improves.

We understand that most people really want to be able to pay their bills and meet their obligations. The fact is that sometimes things happen that are beyond our control.

  • You’re unable to pay your bills on time
  • You’re being harassed by bill collectors
  • You have a judgment against you
  • Your paycheck is being garnished
  • Your house is in (or about to be in) foreclosure
  • You’ve been unsuccessful with debt negotiation or workout plans
  • You’re behind on child support or alimony payments
  • You’re behind on taxes
  • You’re behind on student loans
  • You’re unable to pay more than the minimum payments on your credit cards
  • You’re carrying large credit card balances that never go down.

Main Concepts: Security, Collateral and Priority

When we talk about types of loans and creditors, we often talk about secured and unsecured creditors. Simply put, a secured creditor is someone who has the right to take something if you don’t pay a debt. The debt is secured by the thing that can be taken. The thing that can be taken is called the “collateral,” and the right to take the collateral is called a “security interest.” Typical secured debts include mortgages and car loans. It also often includes something called “purchase money security” in which a retail store has given you credit to buy something from them. (A typical example would be an account with a furniture retailer.)

If you stop making payments on a secured debt, the creditor has the right to take possession of the collateral. Once a creditor has repossessed collateral, they have to sell it in a commercially reasonable manner and apply the money they get (the “proceeds”) to the loan balance. Because these lenders never get very much for the collateral, there is never enough to fully pay the loan. The amount remaining on the loan balance (the “deficiency”) is still owed and the creditor still has the right to pursue the borrower for payment.

The key thing to remember about secured debts is that nothing under basic collection law or bankruptcy law changes the fact that if you don’t pay for the collateral, you can’t keep it. Secured creditors are always entitled to either their collateral, or payment of the value of the collateral. And, outside bankruptcy, repossession rarely makes the entire loan go away. Even after repossession the creditor has the right to payment of the deficiency balance, unless you have received a bankruptcy discharge of the debt or the creditor has agreed in writing to cancel the deficiency.

If a creditor does not have the right to take something from you if you don’t pay, they are unsecured. Collection and bankruptcy laws sometimes give certain kinds of unsecured creditors priority over other unsecured creditors. Priority unsecured debts include taxes, domestic support obligations, and unpaid wages that you owe to someone else who has worked for you.


Main Concepts: Equity and Deficiency

Equity refers to the difference between what you owe on a loan secured by a piece of collateral and what the collateral is worth when the collateral is worth more than the loan balance.

For example, say you have a car loan, and you still owe $10,000 to the lender. If the car is only worth $5000, you have zero equity, and you basically have two kinds of loans in one: a secured loan for $5000 and an unsecured loan for $5000. On an upside down or underwater loan like this, the difference between the loan balance and the collateral value is called the “deficiency.” The deficiency balance represents the unsecured portion of the loan, and with some exceptions, is generally treated just like any other unsecured debt in bankruptcy.

If you owe $100,000 on a mortgage loan and and the house is worth $150,000, you have $50,000 in equity in the house. If you owe $15,000 on a car loan, and the car is only worth $10,000, you have a deficiency of $5,000.

Main Concepts: Exemptions

When you owe a debt and can’t or don’t pay it, the person you owe the money to (a “creditor”) has the legal right to file a lawsuit to collect the debt. (Secured creditors have to take and sell the collateral before they can sue, and then they can only sue for the deficiency.) If the creditor proves you owe the debt (or you don’t respond to or defend against the lawsuit), the court will give the creditor a judgment against you. A judgment allows a creditor to take your property, which they can then sell to pay the debt or “satisfy” the judgment. Judgments also allow creditors to garnish your wages.

The creditor can’t take all of your property. Under state law, some kinds of property are “exempt.” Exempt property cannot be taken by creditors to satisfy a judgment. The purpose of exemptions is to keep creditors from taking everything and leaving you with nothing to provide for yourself and your family.

Judgment creditors have the legal right to take any property that is non-exempt, that is not protected by an exemption. Judgment creditors are only entitled to the equity in your non-exempt property. If they take and sell an item in which another creditor has a security interest, they have to pay off the secured creditor out of the money they get from selling the item. If they don’t, the secured creditor can sue them.

More than half of all people who file for bankruptcy relief have no non-exempt property. These cases are called “no-asset” cases. In these situations, creditors get nothing because the debtor has nothing available to pay them.

In Utah, the exemptions protect a portion of your paycheck, some equity in your home and car, and most of your clothing, household furnishings and appliances. It protects some heirloom items, certain retirement accounts and life insurance. In particular an individual is usually entitled to claim the following exemptions (couples can combine their exemptions to protect equity in a particular item):

  • $20,000 (individual) / $40,000 (husband and wife combined) equity in a primary personal residence
  • $2500 equity in a motor vehicle (husband and wife can comine exemptions in one vehicle)
  • $500 equity in sofa, chairs and related furnishings
  • $500 equity in dining and kitchen tables and chairs
  • $500 equity in animals, books and musical instruments
  • $500 equity in heirloom items of particular sentimental value
  • $3500 in implements, professional books, or tools of trade
  • Burial plots, health aids, disability or unemployment benefits, veterans benefits, health insurance expense reimbursements, child support and alimony
  • Clothes washer and dryer, refrigerator, freezer, stove, microwave oven, and sewing machine
  • Carpets in Use
  • 12-months food storage
  • Clothing (except for jewelry and furs)
  • Beds and bedding
  • Works of art depicting or produced by the individual and/or his or her resident family
  • Compensatory benefits from personal injury claims
  • Life insurance proceeds with some limitations
  • Most retirement accounts

Main Concepts: The Bankruptcy Estate

The bankruptcy estate is created automatically upon the filing of your bankruptcy case. Everything you own or have an interest in becomes part of the bankruptcy estate. A bankruptcy trustee is appointed to manage (or administer) the assets of the estate for the benefit of creditors. The person who filed the bankruptcy becomes a bankruptcy “debtor,” and deals with his creditors and the trustee through his attorney. Because all of the debtor’s property is now part of the bankruptcy estate, he must get court permission before selling or disposing of his property in any way.

Creditors are paid their share of the bankruptcy estate when they file a proof of claim, which is a document filed with the court testifying that they have a claim against (or are owed money by) the debtor.

Main Concepts: The Automatic Stay

The automatic stay is one of the most important aspects of the bankruptcy process. The instant you file your case, the automatic stay goes into effect (that’s why it’s “automatic). The stay prevents creditors from taking any action to collect a debt against property of the debtor or the bankruptcy estate.

The purpose of the automatic stay is to preserve the property of the debtor and the estate from the actions of one creditor to protect the ability to make a fair distribution to all creditors.

If the debtor has filed multiple bankruptcy cases, the automatic stay may not go into effect.

Main Concepts: The Bankruptcy Trustee

A bankruptcy trustee is assigned to every bankruptcy case filed. The trustee represents your unsecured creditors as a group. He does not represent the debtor or his interests.

The trustee’s job is “administer” the bankruptcy estate for the benefit of creditors. In chapter 7, this means the trustee’s job is maximize the amount that can be gained through selling or “liquidating” the non-exempt property of the debtor so that he can pay your creditors as much as possible. In chapter 13, the trustee ensures the debtor’s compliance with the requirements of the bankruptcy code, collects the monthly plan payment and distributes the money to creditors.

Main Concepts: Preferences and Avoidable Transfers

The trustee is given strong powers to gather together the assets of the bankruptcy estate. He even has the power to go back and undo certain transactions.

The first kind of transaction the trustee can undo involves preferences, or preferential treatment of a creditor. For ordinary creditors, the bankruptcy code gives the trustee the ability to recover payments made to a creditor, if those payments total more than $600 in the 90 days before the bankruptcy filing. For insiders (like friends, family members, business associates, etc.) the trustee can recover any payments made in the last year.

Other kinds of transfers are avoidable, including any transfer or sale of an asset for less than fair market value.

Main Concepts: Discharge

The discharge is what you are asking for when you declare bankruptcy. Once you have met all the requirements of the bankruptcy process, the court enters a discharge order. The discharge order is a permanent injunction which prevents your creditors from taking any action to collect a debt that you owed before you filed bankruptcy. A discharge only covers the debts you incurred before you filed bankruptcy. You’ll have to pay any debts you incur after you file.

The discharge is not the same thing as being forgiven of your debts. Your creditors aren’t forgiving you, they are just being ordered to leave you alone. Think of the discharge as the court saying to all your creditors “we’ve looked at this debtor’s financial situation. He has made his financial life an open book. We’ve seen everything there is to see, and we’re satisfied. We’ve made him give up and sell everything he doesn’t need to provide a basic living for himself and his dependents, and we’ve given you that money. We’ve seen how much blood there is in this turnip, and there isn’t any more to give. So leave him alone. And if you don’t leave him alone, he’ll have the right to come after you.”

The discharge only affects your personal liability, or obligation to repay a debt. It does not affect security interests. So even if you have received a discharge, you must continue to make payments on a secured debt in order to keep the collateral, until the loan is paid. On the other hand, your discharge protects you from having to pay the deficiency balance if you give the collateral back.

As you can see, getting a discharge is a significant privilege, not a right. The bankruptcy process confers a serious benefit on the debtor at considerable expense to the creditors. Because of this, you absolutely must comply with every requirement of the bankruptcy code. You must list all of your assets, all of your debts, all of your income and all of your expenses. Deliberately failing to disclose “material” information is grounds for denying or taking away your discharge, and if the omission is serious enough, you could go to jail, pay big fines, and still have your property taken to pay your creditors. You must completely and thoroughly truthful with the court to get and keep a discharge.

The discharge and the bankruptcy process are serious things and you need to take them seriously. Every bankruptcy lawyer out there has stories of the debtor who didn’t think it was important to list something he wanted to keep, or not list someone he wanted to pay. And none of those stories have happy endings. When you are asked to provide information, be truthful, accurate and complete. If there’s a question, discuss it with your attorney and solve the problem in a way that meets the requirements of the bankruptcy code. Nothing you might try to hide is worth the cost of hiding it.

Main Concepts: Redemption and Reaffirmation

You may redeem (keep and pay for) property that is held by a creditor as collateral provided 1) it is tangible personal property used for personal, family, or household uses, 2) it has been exempted and/or abandoned by the Trustee, and 3) that you pay in cash the full amount of the actual cash value of the property within the time limits defined in the bankruptcy laws (generally, 45 days after the bankruptcy case is filed), unless agreed otherwise by the Creditor. Some major creditors allow time payments of the redemption amount.

There is also redemption process that allows you to buy non-exempt property back from the bankruptcy estate using funds you earned or received after the bankruptcy filing.

Under provisions of Chapter 7, you have the conditional right to reaffirm debts only if you and the creditor each sign a Reaffirmation Agreement whose terms do not impose a hardship on you or your dependents. You must file the Agreement with the Court before your discharge. Before allowing you to reaffirm a debt, a creditor normally requires that your payments be current and that you continue to make usual payments. You have 60 days from the date you signed the reaffirmation agreement to change your mind and rescind the reaffirmation agreement. A recission notice must be in writing, and if your rescind the agreement you must surrender the collateral.

If you don’t formally reaffirm, redeem, avoid liens, enter into another agrement to retain the property, or provide for payment on the loan in a Chapter 13 Plan, you will have to surrender collateral.

The courts will generally not approve reaffirmation agreements involving unsecured debts, unless there is a basis for the debt to held as nondischargeable. The bankruptcy code does not prohibit you in any way from voluntarily repaying any debt to choose to pay after you have received a discharge. Voluntarily repaying a debt does not create a formal reaffirmation agreement, but you could become liable for unjust enrichment if the other party provides some service based on a post-discharge promise to pay.

How much will I have to pay my creditors?

The short answer is that, even in bankruptcy, creditors are entitled to at least the value of your non-exempt property. Figuring out how much that is described in the Liquidation Analysis and Means Test Sections below.

How much will I have to Pay?: The Liquidation Analysis

The liquidation analysis tells the bankruptcy court how much your unsecured creditors would receive if all of your non-exempt property was sold or “liquidated.”

Secured creditors always get either their collateral or its value, so the bankruptcy liquidation analysis really only concerns your unsecured creditors.

The number from the liquidation analysis is the starting point at figuring out how much your creditors are entitled to receive through the bankruptcy process.

How much will I have to Pay?: The Means Test

The second thing part of figuring out what creditors are entitled to is the Means Test, and the Means Test itself has two steps.

The first part of the means test compares your annual income to the state median annual income for a household of your size. To figure out your income, you take your total gross income over the last six months and divide that amount by 6 to get your current monthly income. You then multiply that number by 12 to get your annualized income. If your income is below the median, you pass the means test and can probably file a chapter 7, which means all your creditors get is what they’re entitled to under the liquidation analysis.

If your annual income is above the median, you will have to go through the second part of the means test to see how much more than the liquidation analysis result your creditors may be entitled to receive.

The second part of the Means Test figures out what your disposable monthly income is by factoring in all of your income and all of your allowable expenses. The Means Test looks at your monthly income (from all sources except Social Security), based on an average of your income over the six months prior to your bankruptcy filing date. It looks at your average expenses for necessary items, including taxes, insurance, housing, utilities, food, clothing, medical expenses, transportation and support obligations, and also compares your actual expenses to expenses allowed under Internal Revenue Service (IRS) collection guidelines.

If your budget or Means Test analysis shows that you have to ability to make a monthly payment to your creditors, you may be required to do so through a chapter 13 plan for a three or five year period before you can get your discharge, even if that amount is more than the amount required under the liquidation analysis. The amount of your monthly chapter 13 plan payment will be the amount the Means Test or Budget show you have available. You will be required to pay your creditors every dime available after allowable expenses.

If all of this is making your head spin, don’t worry. The lawyers affiliated with the Utah Bankruptcy Guide undertand how this works, and help people make these calculation every day.

What are the different types of bankruptcy?

There are a number of different kinds of bankruptcy, each named after a chapter of the bankruptcy code. You may have heard of some of them.

Corporations and wealthier individuals (including Enron, MCI, most U.S. airlines, etc.) file under Chapter 11.

Government entities file under Chapter 9.

Family farmers file under Chapter 12.

International bankruptcies are filed under Chapter 15.

Most individuals with consumer debts will file under either Chapter 7 or Chapter 13.

What is Chapter 7 liquidation?

Chapter 7 is what most people are thinking of when they hear the word “bankruptcy.” It is also often called a “straight” or a “fresh start” bankruptcy.

Under chapter 7, your creditors are entitled to receive the amount determined by the liquidation analysis. A bankruptcy trustee will review your property and determine whether there is enough value or equity in your non-exempt property to be able cost-effectively sell or “liquidate” those items. Trustees often find that non-exempt items are not worth enough to be able to cost-effectively liquidate. When this happens, the debtor gets a discharge without turning over any property. (We call those “no asset” cases).

If the trustee decides to sell non-exempt property, that property must be turned over to the trustee in exchange for the discharge. An alternative to turning over property is called redemption, which allows you to buy the item back from the trustee. This is usually only available if you can pay for the value of the item in full at one time (no payments) with money earned or received after case is filed.

Chapter 7 will not help you save your home, your car, or other collateral securing loans if you are behind on those debts when you file. And since it does not affect most security interests, it does not eliminate the payments on those items if you plan to keep them.

Here’s a quick summary of the advantages and disadvantages of Chapter 7:

Advantages:

  • No minimum amount of debt required.
  • No maximum amount of debt limitations.
  • Immediate stoppage of collection, repossession, foreclosure, garnishments, etc (automatic stay).
  • The case is over in about 4 to 6 months.
  • Unpaid balances after return of collateral are discharged.
  • Income and property you acquire after the bankruptcy filing date (except for inheritances) are debtors to retain and not subject to creditors’ claims.

Disadvantages:

  • Non-exempt property is sold by the trustee to pay creditors.
  • Some debts survive and can be collected after the case is closed (e.g. student loans. support payments, etc.).
  • On secured claims (home loans, car loans, etc.), lender’s collection and/or foreclosure efforts are only temporarily stalled by filing.
  • Co-signers of a loan remain liable on the loan and subject to collection, even while you’re in bankruptcy.
  • Cannot file a chapter 7 if previous chapter 7 discharge granted within 8 years.
  • Difficult to dismiss or withdraw from a Chapter 7 filing.

What is Chapter 13 Debt Reorganization?

Chapter 13 is a debt reorganization or debt consolidation program. It is also sometimes called a “wage earner’s plan.”

Under chapter 13, creditors receive either the liquidation analysis amount or the Means Test / Disposable Monthly Income amount, which ever is greater. Unlike Chapter 7, however, your non-exempt property is not sold. Instead, the bankruptcy trustee assigned to the case will accept a monthly payment from you that he will distribute to your creditors. You make this monthly payment for either three or five years, depending on part of the Means Test analysis and on what else you might be trying to accomplish through your chapter 13 plan. The monthly payment can also include money to pay mortgage delinquencies, car loans, back taxes, past due child support and alimony, as well as the amounts required by the liquidation analysis and Means Test. Basically, its a debt consolidation program without getting a debt consolidation loan.

The results of the Means Test may require you to file under chapter 13.

Some debts that cannot be discharged under Chapter 7 can be restructured and paid under Chapter 13. This allows you to get caught up debts like your home and car loans. Getting caught up on such things may cause your plan to run up to five years when the bankruptcy code itself would only require you to pay for three years.

Unlike some debt consolidation or negotiation programs, Chapter 13 does not require the cooperation of your unsecured creditors. Unsecured creditors will receive only what you can afford to pay based on your liquidation analysis and the Means Test.

Chapter 13 means living on a court-approved budget for up to 5 years. This requires a serious commitment.

Developing a proper Chapter 13 plan is a complex process, and requires an attorney with a detailed knowledge of bankruptcy law and a great deal of practical experience. All of our attorneys have years of experience in bankruptcy practice, and they are familiar with the requirements of the code and of our local bankruptcy court. They know the types of provisions that will be approved or “confirmed” by the court.

Here’s a quick summary of the advantages and disadvantages of Chapter 13:

Advantages:

  • No minimum amount of debt required, although lower amounts of debt may make filing a chapter 13 unreasonable.
  • You may not be able to file chapter 13 if you have too much secured debt.
  • Immediate stoppage of collection, repossession, foreclosure, garnishments, etc (automatic stay).
  • Unpaid balances after return of collateral are discharged.
  • All income received during the plan becomes property of the bankruptcy estate.
  • Non-exempt property is not sold.
  • Mortgage delinquencies can be repaid over time without foreclosure.
  • Some car loans can be restructured and repaid on better terms without repossession.
  • Back taxes, child support, alimony can be caught up and paid.
  • Some debts that may not be dischargeable in chapter 7 can be discharged through chapter 13.
  • Cosigners are protected to the extent the obligation is paid through the chapter 13 plan.
  • May be voluntarily dismissed at any time.

Disadvantages:

  • Plan lasts three to five years.
  • No new debt can be incurred without court permission during life of plan
  • No property can be sold without court permission during life of plan.
  • Tax refunds over $1000 have to be paid to trustee during life of plan.

Will I have to go to court?

In either chapter 7 or chapter 13, you will have to attend the First Meeting of Creditors, which is basically a meeting with your bankruptcy trustee. This meeting takes place 30-45 days after your case is filed. if you are not at this meeting, your case will be dismissed without a discharge. The Meeting of Creditors is not a formal court hearing, and there is no judge present.

You may have to attend other hearings in your case if the court directs. In chapter 13 cases, there is usually a confirmaton hearing you will need to attend. You will usually have about 20 days notice of the meeting of creditors, and about 2-3 months notice of the confirmation hearing. A federal bankruptcy judge presides at a confirmation hearing and may make rulings and issue order in your case.

Sometimes creditors attend the Meeting of Creditors, but they usually don’t.

You make your first chapter 13 plan payment at the meeting of creditors.

Other events can occur in both chapter 7 and chapter 13 case that might require an actual appearance in court before a federal bankruptcy judge.

Under Chapter 13, when will my plan payments start?

You make your first chapter 13 plan payment at the meeting of creditors. Payments are due in the trustee’s office no later than the 25th of the month each month after that.

What property do I have to list or disclose?

All of it. You must list everything you own or have an interest in.

This includes:

  • All real property (real estate, houses, land, buildings, etc.), whether you own it free and clear or are still paying for it.
  • All personal property of any kind (tangible or intellectual, etc.) whether you own it free and clear or are still paying for it.
  • All interests in businesses, including partnerships, stocks, bonds, options.
  • Interests in trusts, etiher as a trustee or beneficiary.
  • Interests in insurance policies
  • Interests in bank accounts and safe deposit boxes
  • Professional or Occupational Licenses
  • Club memberships
  • Animals, including house pets
  • Everything else of any kind.

Failure to list an item of value could cause the loss of your discharge or worse. If the omission is serious enough you could go to jail and be ordered to pay fines. Deliberately concealing assets from the bankruptcy court is called “bankruptcy fraud.” It is a federal crime punishable by up to 5 years in prison and a $500,000 fine for each count. And you’ll still have all your debts.

What creditors and debts do I have to list?

All of them. Each and every one of them. Even the ones you forgot and need to add later. Even the ones you’re not sure you owe. Even the ones you don’t want to include in the bankruptcy.

The law requires you to list all creditors, including those whose claims you dispute and those you plan to keep paying. If you are divorced and your ex-spouse claims that you owe him or her money or that he or she paid on an obligation that he or she claims you should have paid, you must list him or /her as a creditor. You cannot intentionally exclude any person to whom you owe money or who claims you owe him or her money. You must list both the mortgagee and the government agency if the debt on your home is a Veterans Administration loan or any other federally insured mortgage. Debts must be listed whether your payments are current or in arrears.

You must list debts to family members, even if doing so is really, really embarassing. If there was an expectation that money from a family member was to be repaid, you must list it. You must deal with all of your creditors through the bankruptcy process or none of them. You cannot pick or choose who you’ll pay and who you won’t, especially on the basis of a family relationship. And you really don’t want to be caught paying back undisclosed loans to family members outside a chapter 13 plan. At a minimum, you could get the family member sued, which would be a lot more embarassing that disclosing the debt correctly in the first place.

Under some circumstances, leaving someone out of your bankruptcy for the purpose of giving them better treatment than other creditors is bankruptcy fraud.

How can I keep my home and / or car?

If you owe money on your home or your car, you must keep paying for it if you want to keep it. If you’re behind on the payments, you may be able to get caught up using a chapter 13 bankruptcy. If you’re behind, chapter 7 probably won’t help you.

Regardless of payment status, if you have non-exempt equity in your home or car, you will lose it in a chapter 7 bankruptcy, because the trustee will have to sell them to raise money to pay your creditors. You may be able to keep them in a chapter 13, if you can afford a plan payment big enough to pay your creditors the value of the non-exempt equity in 5 years or less. If you can’t do that, you may be better off selling the house or car yourself and paying your creditors with the proceeds on your own.

Most people who file bankruptcy are able to keep their home and car. In many cases, trying to keep these things is the reason they file. Do keep in mind that even if bankruptcy, if you want to keep your home and car you will still have to pay for them. Keeping your home depends on a couple of things.

If you don’t have non-exempt equity in your home or car and are current on payments (and can continue to make them) you will usually be able to keep them, even under Chapter 7.

Can I stop making my house payment?

If you plan on keeping your house, you must continue making the payments. If you are behind on payments, you must able to resume making them once you file your chapter 13 case. Only a chapter 13 plan allows for making up mortgage payments which are past due at the time your bankruptcy case is filed. In this case, you must make the next payment due after the date your case is filed, plus all subsequent payments, directly to the mortgage holder. If you fall behind again, the mortgage lender will ask for relief from the automatic stay, which if granted will allow them to resume the foreclosure process. If this happens, it is very difficult to stop the foreclosure again.

Can I stop making my car payment?

If you plan on keeping your car, you must continue making the payments. In addition, you will to need reaffirm your car loan debt. If you are in a chapter 13, you car payments will be included in your chapter 13 plan payments unless your attorney tells you otherwise.

If you don’t formally reaffirm, redeem, avoid liens, enter into an agreement to retain the property, or provide for payment on the loan in a Chapter 13 Plan, you will be obliged to surrender any collateral securing a loan.

What happens to leases and executory contracts?

You are free to assume (continue) or reject outstanding leases and certain contracts that are not fully performed as of the time you file bankruptcy.

If you reject the lease or contract, you must surrender the leased property, includng vehicles, leases or rentals for residences, buildings and commercial spaces, water softeners, alarm systems, vacuums, etc.

If you do not explicity assume a lease or contract, the court and the other other party will consider the lease rejected and can act accordingly.

Can I stop paying child support and alimony?

Of course not. After filing for bankruptcy, you are obligated to begin or to continue making child support and/or alimony payments under whatever terms you were originally required to pay them.

Payments that are past due at the time a case is filed may be paid through a Chapter 13 Plan, but you must stay current on the ongoing payments in addition to your plan payments. These payments will be factored into your Means Test and Budget analysis.

Chapter 7 does not affect child support or alimony obligations.

Child support and alimony must be listed as debts and obligations in your bankruptcy filing.

Can I stop paying my student loans?

Student loans are not dischargeable in either chapter 7 or chapter 13.

Usually some portion of your chapter 13 plan payment will go to pay something toward a student loans, but rarely enough to fully pay the loan balance and rarely enough to keep up with interest. If you do not pay off a student loan in full through a chapter 13 plan, any amount owing at the end of the plan will not be discharged and you will have to resume making payments.

Can I stop paying my utilities?

Not if you want to continue to enjoy having utility service. Past due utilities can be discharged in chapter 7 or chapter 13.

The utilitiy provider may require you to pay a deposit and establish a new account to continue to provide you with services. You will need to stay current on the new contract.

If the utility company requires a deposit, you must pay it within 20 days of filing your bankruptcy case.

What happens to my cosigners?

Cosigners remain liable to pay on a cosigned debt in Chapter 7 cases. If you have received a discharge, the cosigner will be the only one the creditor can legally pursue for payment.

In Chapter 13 cases, cosigners benefit from the automatic stay and will be protected to the extent the debt will be paid through the plan. If your chapter 13 plan does not propose payment of a cosigned debt in full, the creditor can ask the court to pursue the difference from the cosigner. They cannot legally pursue payment from the cosigner while the plan is in effect without getting court permission.

What happens to money I owe or have paid to family members?

Money owed to family members must be listed in your bankruptcy filing. Everyone you owe money to must be listed. The court will treat these debts just like any other debt listed in your bankruptcy.

In addition, you must disclose debts repaid to family members in the 12 month period before your bankruptcy filing. If you paid too much back to a family member, it may be considered a preferential treatment.

What happens to my tax returns and refunds?

In a chapter 7 case, you should not plan on keeping any tax refund due to you at the time you file, or for the year in which you file. In both chapter 7 and chapter 13 cases, you will have to provide the bankruptcy trustee with a copy of your most recent tax return prior to the meeting of creditors.

If you have any missing or unfiled tax returns, your bankruptcy filing cancels all income tax extensions. The Trustee will direct you to 1) file all tax returns within ten days, 2) keep all tax filings current while your bankruptcy case is pending, and 3) file the missing returns to special bankruptcy departments and the IRS and state tax commission. For your protection, you should file these returns with your attorney who, in turn, will submit them to the appropriate agency and department.

In a chapter 7 case, the bankruptcy trustee will require you to turn over any tax refund owing to you at the time the case was filed. If you have paid any taxes, or had any withheld from your paycheck, for which you may be entitled to a refund, the trustee may hold your chapter 7 case open until the amount of the refund can be determined and paid. The bankruptcy estate’s share of your annual tax refund is prorated based on how far into the year the date was when your case was filed. If you file July 1, the estate will be entitled to 6/12 or 1/2 of your tax refund for the year in which you filed or for which you were entitled to a refund you had not yet received. The estate is not entitled to any tax refund, or portion of a refund, you become entitled to after your case is filed. Failure to comply with the trustee’s tax refund directives will result in the loss of both the refund and your discharge.

In a chapter 13 case, you will be required to provide the chapter 13 trustee with a copy of your tax return each year for at least the first three years of your case. You will have to provide the copy to the trustee by April 30th of each year. You will have until July 30th to pay to the trustee your combined tax refund (both federal and state) over $1,000. You get to keep the first $1,000 of your refund. For example, if you are owed a federal tax refund of $800 and a state tax refund of $400, you will get to keep $1000 and send the trustee a check for $200, along with your regular plan payment. Failure to comply with these requirements will result in the dismissal of your case without a discharge.

Can I do anything about judgment liens?

Legal action can be taken to set aside judicial liens or non-possessory, non-purchase money liens on household goods, furnishings, wearing apparel, appliances, books, animals, musical instruments, implements or tools of trade, and professionally prescribed health aids.

You must tell your attorney about any judgments and or liens as formal legal action must be taken to remove them.

What debts cannot be discharged?

While most types of debts can be discharged, some debts are excluded from the discharge. As a general rule of thumb, you can’t discharge a debt when you did some sort of bad act in acquiring the debt. This includes debts incurred through fraud, theft or embezzlement, or debts related to criminal acts, including willful injury to someone else or driving while impaired. Criminal fines and penalties are also not discharged.

Other debts are not included in the discharge as a matter of public policy. These include domestic support obligations, student loans, and debts imposed through a divorce decree or property settlement.

Some taxes may dischargeable, if they are older, and if the returns were filed on time or within an allowed extension. The return must also be free of a claim of tax evasion.

Will I ever be able to get credit again?

Before the national financial crisis that hit in the fall of 2008, we were able to answer this question with an unequivocal YES. It’s still hard to say how the loosely the credit markets will function again in the future.

Assuming things gets back to normal, and assuming you ever want credit again, it will be available. The real impact of bankruptcy is in the cost of credit, not the availability. There are many “fresh start” loan programs for mortgages and vehicle loans. Several prominent local car dealerships appear to use bankruptcy filing records to generate mailing lists, and those “pre-approved” credit card offers you get everyday will barely slow down. We have had clients qualify for no money down mortgages just a few months after their discharge.

All that aside, the interest rates available will be higher, and there are many predatory loan programs targeting bankruptcy filers. You should be very careful, and very conservative in obtaining credit after your bankruptcy. While a bankruptcy will appear on your credit report for ten years, if you avoid further financial problems after you file and pay your bills on time, most people find that the bankruptcy remains a factor in lending decisions for only a few years after their discharge.

What criminal penalties are possible?

First off, there is nothing illegal or wrong about resolving your debt situation through bankruptcy. You must follow the rules of the bankruptcy process, and stick to the advice I give you.

Making a material misrepresentation in your bankruptcy case may be a criminal act. A material misrepresentation generally involves deliberate or wilfully negligent statements, misstatements or omissions or failures to comply that have an impact on the administration of the case or the distributions to creditors. Cases are routinely and randomly audited to check for material misrepresentations.

Bankruptcy crimes are federal crimes and are investigated by the FBI. Being convicted of deliberately giving false or incomplete information about your assets or liabilities or lying under oath carries a penalty of $5,000.00 and/or a five-year jail term.

How do I Get Started?

The first step to obtaining your bankruptcy discharge is to schedule an appointment for an initial consultation. At this first visit we will discuss your situation and determine if bankruptcy is a good option for you. We will also discuss any non-bankruptcy options that may appear appropriate in your situation, and we will discuss the costs and fees involved in filing.

Please plan on bringing the following documents with you to your first appointment (if a husband and wife will be filing together, please bring the following for both of you):

  • Driver’s license, proof of properly issued social security number, and proof of current residence (utility bill, etc.)
  • Copies of your last two pay stubs
  • Copies of any current lawsuits and/or garnishments
  • A good idea of how much you owe, who you owe, and what kind of debts they are (home loans, car loans, credit cards, medical bills, bad checks, etc.)
  • A good idea of how much gross income you make each month, how much you take home, and what your monthly expenses are.
  • If you can’t come up with these documents in time for your visit, that’s OK. They’re helpful, but we can still have a productive discussion without them. Filling out the initial consultation packet before the appointment will be very helpful. There’s a link to it here, and on our home page.

The initial consultation is free and you will not be obligated to hire us to file your bankruptcy case. You don’t need to bring any money with you. However, if you are already sure you will be filing, it will move things forward faster if you can bring at least a portion of the retainer fee with you. The up front cost in most bankruptcy cases is between $1200 and $1500, including my fee, the court filing fee, costs for credit and public reports, and credit counseling. This amount is similar to that charged by most attorneys along the Wasatch Front for bankruptcy services. I recommend between $50 and $200 for the initial payment. You can pay the rest of the fees prior to your filing. If you need to file quickly, to stop a garnishment or foreclosure, you will need to plan on paying the full fee at the initial consultation, and you should do the best you can to complete the questionnaire and gather the documents on the supporting document checklist included with the questionnaire and bring those with you to the first visit.

What happens after I meet with my attorney?

When you have have met with your attorney, completed the Online Bankruptcy Preparation Interview, and gathered all the needed supporting documents (pay stubs, tax returns, vehicle registrations, etc.) your attorney will get back together with you for a return appointment. At that appointment you and your attorney will review those documents and make sure the online interview is complete. Your attorney will then use the interview and supporting documents to complete the paperwork that will be filed with the court.

While your attorney is preparing your filing documents, you will need to obtain your pre-bankruptcy credit counseling. This is done over the internet and by telephone. We work with Hummingbird Credit Counseling and Education. Their web site is www.hbcce.org. The fee for this counseling session is included in the fees you will pay prior to your case filing. This counseling session requires a high-speed internet connection. If you don’t have one, we will schedule a time for you to complete the session using a computer in our office.

When the filing documents are completed (usually within seven days of the return appointment, sooner in emergency cases) and you have paid the fees outlined at the initial consultation, you and your attorney will meet again to review and sign those documents. After the signing, your bankruptcy case will be filed. Your bankruptcy case cannot be filed until you have reviewed and signed the completed bankruptcy case documents your attorney will prepare for you.

About 2 weeks after the case is filed, you will get a notice from the court telling you the date and time of your Meeting of Creditors and in chapter 13 cases, the date and time of your confirmation hearing.

The Meeting of Creditors will take place about 30 days after you case is filed. The Meeting of Creditors is really just a meeting with your bankruptcy trustee, and you must be there. Your attorney will be there with you. The trustee will review the documents that have been filed and ask questions about your financial situation. You may be asked by the trustee to take certain steps or to provide additional financial information. In Chapter 13 cases you will also have to make your first plan payment at this meeting. If you do not appear at the Meeting of Creditors your case will be dismissed. The only allowable excuses for non-appearance are hospitalization and incarceration.

In Chapter 13 cases, you will also have a hearing to confirm your Chapter 13 plan. This hearing is usually held about 45 days after the meeting of creditors. In some cases, there won’t be any issues remaining for the court to resolve, and your plan may be confirmed without a hearing. You will get notice of

Within 45 days after your Meeting of Creditors you must complete your Debtor Education / Financial Management Course. This course is available through Hummingbird Credit Counseling and Education. Their web site is www.hbcce.org. The fee for this counseling session is included in the fees you will pay prior to your case filing. This counseling session requires a high-speed internet connection, and involves watching a two-hour video. If you don’t have one, we will schedule a time for you to complete the session using a computer in our office.

In most Chapter 7 cases you will receive your discharge about 60 days after the Meeting of Creditors. In Chapter 13 cases you will continue to make your monthly plan payment. You will receive your discharge at the completion of your plan.

How should I contact my attorney?

Each day I receive numerous phone calls from creditors, clients, and other attorneys. While your telephone calls are always welcome, our attorneys give priority to mail, e-mail or written notes. In short, written communications always get better results than phone calls. Many questions are not as simple as they seem, and written communication creates a record of the question and the advice given, and allows the attorney time to provide a thoughtful and complete answer. Written communications generally allow the attorney greater and more efficient control over his time and efforts.

On the other hand, if your attorney calls you, please make every effort to be available or to respond quickly. Please be sure that your attorney always has up-to-date contact information for you, and it’s helpful to let him know if you’re going to be unavailable for any period of time, especially in chapter 7 cases before discharge and chapter 13 cases before confirmation. In pre-confirmation cases, any communication from your attorney or his staff could be critical and you must respond quickly.

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