Attorney Kristy Hernandez
Do You have Questions about Bankruptcy?
WHAT CAN YOU KEEP IN BANKRUPTCY?
Most people do not lose any of their belongings in bankruptcy. The end goal of bankruptcy is to get you back on your feet financially. Therefore, your basic necessities are protected in bankruptcy, so as to help you re-establish yourself.
The equity in your home and most of your personal belongings will, in all likelihood, be protected in bankruptcy.
The exemptions (the bankruptcy law which protects your assets) are very complicated and you should consult an attorney to maximize the protection that you are afforded under Bankruptcy Law.
WHAT ACTIVITIES SHOULD I AVOID PRIOR TO FILING?
Do not transfer property to anyone. This includes anything valuable, such as a house, car, boat, bank account, etc. If you try to, the Court WILL find out. You are clearly asked in your petition whether you have transferred property to anyone in the past 2 years. The Bankruptcy Trustee will also ask the same under oath at your hearing. Make sure to ask the attorney during your initial consultation about protecting your property in a bankruptcy case.
Do not ignore your creditors or lawsuits against you. Many people file bankruptcy due to lawsuits from creditors. Until your case is actually filed, any lawsuits against you continue to proceed. The same advice applies to vehicle repossession efforts and utility shut-offs. Stay in contact with your creditors and let them know you will be filing for bankruptcy.
Do not use credit cards or take out loans. If you are considering Bankruptcy, don’t max out your credit cards thinking you are home-free. Rules prevent individuals from taking cash advances or purchasing luxury items on credit in the 90-day period prior to filing bankruptcy. Creditors can challenge you in Court if they believe that you have acted in bad faith in using excessive credit.
Do not make payments on credit cards or on any assets that you have decided to surrender. Once you have decided to file for bankruptcy, you may immediately stop making payments on all the debt that will be discharged in your case. Also, if you plan on surrendering an asset such as a car or boat, you do not need to keep making payments on these items.
CAN TAXES BE DISCHARGED?
Contrary to common belief, income taxes can be discharged in bankruptcy provided that:
The taxes are at least three years old.
The tax returns must have been actually filed at least two years ago.
Any assessment was more than 240 days ago.
The debtor did not engage in any type of fraud or tax evasion.
CAN I BE FIRED FROM MY JOB FOR FILING BANKRUPTCY?
One question we are often asked is whether someone can be fired from their job if they file for bankruptcy.
The quick answer is, “No.”
The Bankruptcy Code contains specific protections for people who file. Section 525(b) says:
“No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act. “
In other words, if you’re fired solely
because you filed for bankruptcy, your employer is breaking the law, and you can sue for losses and damages.
CAN STUDENT LOANS BE DISCHARGED?
Student loans are not dischargeable in bankruptcy, except in cases where it would create an extreme hardship on the debtor to pay back the student loan.
CAN CHILD AND SPOUSAL SUPPORT BE DISCHARGED?
CAN PROPERTY SETTLEMENT AGREEMENTS BE DISCHARGED?
Property settlement agreements as a result of a divorce can never be discharged in bankruptcy.
WHO SHOULD CONSIDER BANKRUPTCY?
Anyone that is overwhelmed with financial problems should consider filing bankruptcy. Financial problems greatly affect your entire life causing some, if not all, of the following problems:
Physical ailments (ulcers, high blood pressure, insomnia).
Problems within a marriage and within a family due to the stress of the financial situation.
Negative affect on your job performance.
Depression and a feeling of being overwhelmed.
Bankruptcy should be considered as medicine for those who are financially ill.
Anyone who has been denied a loan modification because they have too much unsecured debt.
WILL MY CREDIT BE RUINED?
Your credit is not hurt by the bankruptcy itself; what hurts your credit is that the debts are not paid. The way to rebuild your credit is to buy an inexpensive item on time and pay for it; then buy something else and pay for it, etc.
An automobile is one of the easiest items to buy after the bankruptcy is over.
You can maintain your bank accounts and all of your utilities.
You can make arrangements to pay any creditor, if you want or feel obligated.
Bankruptcy will stay on your credit report for up to 10 years, but if you have a decent income, you will find credit. With over a million people a year filing bankruptcy, creditors would run out of customers if they refused to extend credit to everyone who has filed bankruptcy.
I FILED IN THE PAST — CAN I FILE BANKRUPTCY AGAIN?
You can file bankruptcy more than once. To file another Chapter 7 bankruptcy, there must be at least six years time from discharge to discharge. You can file a Chapter 13 bankruptcy at any time, so long as you intend to pay your creditors 100%. If you are going to be paying your creditors less than 100%, then it needs to be at least six years from your last discharge.
CAN I WIPE OUT MY SECOND MORTGAGE IN BANKRUPTCY?
Yes, in a Chapter 13 mortgage if the second mortgage is wholly unsecured, you may be able to wipe out a second mortgage entirely.
CAN I GET MY MORTGAGE MODIFIED IN BANKRUPTCY?
A bankruptcy judge will not modify your loan, but it can be used as a tool to help push the lender into modification.
If you have been denied a loan modification because you have too much debt, a bankruptcy may help you qualify. Also, may lenders approach offering modifications when you are in bankruptcy because they fear you will walk away from the house as part of your bankruptcy case. Bankruptcy can be an excellent tool to help you get a loan modification.
In a Chapter 13 case, the court will often “strip” away a second mortgage, depending on fair market value of your house.
WHAT ARE THE ADVANTAGES OF BANKRUPTCY?
Once debts are discharged through the bankruptcy court in a Chapter 7 Bankruptcy they’re gone forever. With the other options you will most likely have to pay some money even if it is pennies on the dollar.
WILL BANKRUPTCY HELP OR HURT MY CREDIT?
Bankruptcy ranks as the worst thing possible on your credit report, but once it’s over you may start to rebuild credit immediately. Compare this to a debt settlement that takes three years. The debt settlement person must start the credit rebuilding process only after the debt settlement finishes, by that time the person who filed bankruptcy already put three years of credit rebuilding to work and could have good credit re-established.
HOW LONG DOES A BANKRUPTCY CASE TAKE?
Chapter 7 Bankruptcy cases may be filed in days and finished in 4-8 months most times. Chapter 13 Bankruptcy cases may take many months until a plan gets approved then three to five years for the plan to be completed. An attorney can give you a better idea of how long your particular case will take once they have the chance to review your situation.
HOW LONG UNTIL MY CREDIT GETS BACK TO WHERE I CAN QUALIFY FOR CREDIT CARDS, CAR LOANS OR A MORTGAGE?
Rebuilding credit depends on how aggressively you try to get back on track, but don’t figure less than 1-3 years for a home loan after bankruptcy with terms close to those available to someone who never filed bankruptcy. Most clients find that they can get credit cards and auto loans immediately after their case closes.
IF I CHANGE MY MIND AFTER A CASE IS FILED, CAN THE BANKRUPTCY BE REVERSED?
You may be able to get the case dismissed but the fact that you filed it will be on your credit report and a judge will decide if it may be dismissed or not.
DOES BANKRUPTCY STOP A FORECLOSURE?
When a bankruptcy gets filed, an automatic “stay” on litigation such as foreclosures, repossession and sheriff’s sales goes into place. This stay prevents a foreclosure from taking place until the lender petitions the court to have the stay removed.
CAN I CHANGE FROM A CHAPTER 7 TO 13 OR VICE VERSA?
You can make a motion to convert a case after it is filed, as can the bankruptcy trustee. A bankruptcy judge must approve the motion.
CAN I FILE SEPARATELY WITHOUT MY SPOUSE?
There is no law about who must file, the decision should be made based on the debt, credit and personal situations. Here are a few quick examples:
If all of the debt is in the name of only one spouse only that spouse need file.
If all debt is joint and you want a Chapter 7 discharge both should file.
If the goal is stopping a foreclosure with a Chapter 13 only one spouse need file. Make sure that the filing spouse is named in the title to the home.
IF ONLY ONE SPOUSE FILES, WILL THE OTHER BE AFFECTED?
If there is no joint debt the bankruptcy filing may not appear on their credit report, but if you need to buy a car or house jointly in the future it will force most new loans to be evaluated based on whoever has the worst credit.