FAQ

Q. Does my spouse have to file with me?
A. No. There is no requirement that a husband and wife file bankruptcy together. In some instances, if most debts are owed only by one spouse, it may be appropriate for that spouse to file alone. But, jointly owned property may be affected if only one spouse files. And, in most cases, a husband and wife have the same debts or have cosigned the same loan agreements. If only one spouse files in this situation, the creditors can continue to demand payment from the spouse who did not file.
Q. Will bankruptcy hurt a non-filer’s credit rating?
A. If you have joint debts with someone else (a spouse, parent, or other co-signor) who is not filing bankruptcy, then that person’s credit rating will be affected. Not only will the debt be reported as part of a bankruptcy case, the creditor will be looking to whoever co-signed the debt and did not file bankruptcy for payment.
A. If you have joint debts with someone else (a spouse, parent, or other co-signor) who is not filing bankruptcy, then that person’s credit rating will be affected. Not only will the debt be reported as part of a bankruptcy case, the creditor will be looking to whoever co-signed the debt and did not file bankruptcy for payment.
Q. I am in the middle of a divorce. I know I will need to file bankruptcy. When is the right time?
A. Timing is crucial in a bankruptcy/divorce situation. Each case is different. You should consult with a bankruptcy attorney who is familiar with the interplay between bankruptcy law and matrimonial law. Make sure that you bring your divorce case information statement to the consultation.

WHETHER TO DECLARE BANKRUPTCY IN THE FIRST PLACE

Q. Should you declare bankruptcy?
A. Personal bankruptcy is generally considered a debt management option of last resort when all else has failed. Ask yourself these questions:
1. Have you tried to work with a reputable debt consulting company to get your debts/interest rate lowered and monthly payments reduced?
2. Do you have the necessary income to fund such a plan in a reasonable amount of time (2-3 years, or less) without having to work two or three jobs or depend on a lot of overtime?
3. Do you want to commit to a long term solution, even if it is seemingly workable?
4. Are you being relentlessly pursued by creditors and/or have judgments or garnishments facing you?
5. Do you have an imminent foreclosure facing you?
If your the answer to question number one is “no”, then we highly recommend you check this option out first before proceeding to question two. If you’ve check out question one, and you cannot afford the monthly payment, then bankruptcy is probably your only option if you desire to be rid of your debt under the applicable bankruptcy chapter you qualify for.
If you’ve checked out question one and two, but just don’t want to commit to monthly payments over an extended period of time, or are just worn out dealing with creditors, then bankruptcy, again, is probably your only option if you want expedited results.
Finally, if you are facing an imminent foreclosure, absent some other intervening forces such as re-financing your home, help from family or friend, etc., then bankruptcy is your only alternative to saving it.

DIFFERENT TYPES OF BANKRUPTCY

Q. What are the different types of bankruptcy?
A. The Bankruptcy Code separates bankruptcy filing under four chapters: 7, 11, 12, and 13. Chapter 7 can be generally described as a “straight liquidation” case, while chapter 13 can be generally described as a “wage earner’s plan”. Chapter’s 11 and 12 generally do not apply because they involve corporate/individual business debtors and farmers, respectively.
A chapter 7 bankruptcy can be more particularly described as follows:
1. Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts.
2. In October, 2005, congress added two significant requirements for filing chapter 7: a) maximum wage requirements and b) credit counseling (taken before filing) and debtor education (taken after filing) courses. While the courses can be taken on line (please see the firm’s resources tab for web sites where these can be taken for under $35.00 each), you will need to know what your income has been and discuss that amount with the attorney during your interview to see if you qualify for a chapter 7 filing.
3. If you qualify, a chapter 7 trustee will take possession of all your property, except what is exempt under state law. Anything not exempt will be liquidated by the trustee and the proceeds used to pay your creditors. In addition, there are various written documents such as tax returns, bank statements, and check stubs which you will need to copy and have ready to mail to the trustee after your case is filed.
4. The purpose of filing chapter 7 is to obtain a discharge of your existing debts (i.e. to be relieved from having to pay your debts forever). If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, your discharge may be denied by the court.
5. Even if you receive a discharge, there are some debts that are not discharged under the law such as certain taxes, student loans, alimony, support, criminal restitution, etc.
6. You may be able to keep on making payments on a home and vehicle and retain these assets under certain conditions.
A chapter 13 bankruptcy can be more particularly described as follows:
1. Chapter 13 is designed for individuals with regular income who are temporarily unable to pay their debts, but would like to pay them in installments over a period of time. This chapter is also a way to still file and get bankruptcy relief as to all or a portion of your debts where your income disqualifies you from filing a chapter 7 case. However, you are only eligible for chapter 13 if your unsecured debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.
2. Like a chapter 7 case, you must take two courses, credit counseling before filing, and debtor education after filing your case. Again, please see the course providers listed under the “RESOURCES” tab.
3. Under chapter 13, you must file a plan with the court to repay your creditors all or part of the money that you owe them, using your future earnings. Usually, the period allowed by the court to repay your debts is three years, but no more than five years. Your plan must be approved by the court before it takes effect.
4. Under chapter 13, unlike chapter 7, you may keep all your property, both exempt and non-exempt, as long as you continue to make payments in an amount approved by the court under a plan.
5. After completion of payments under your plan, your debts are discharged except alimony and support payments, student loans, certain debts including criminal fines and restitution, etc.
Q. Which bankruptcy chapter is right for me?
A. If you wish to stop a foreclosure action against your home, and have no other way to do so, absent filing bankruptcy, then chapter 13 is your only alternative.
If you make a certain amount over the last six months (depending on your household size) or have extra income after normal and usual living expenses are added up (lights, gas, electric, car and house payments, food, insurance, clothing, cable, phone, etc.), then chapter 13 is your only bankruptcy alternative in most instances.
If your assets are over the exempt limits and you do not want to have to sell a car with a large equity position in it, furnishings, and other valuables, then you can keep these items by paying at least their fair value in a chapter 13 case.
If none of the three previous scenarios fit your circumstances, then you might consider making an appointment for a one-half hour free consultation to see if a chapter 7 case is available.
In summary, a chapter 13 is generally preferable where you either have too much household income, you are facing a foreclosure sale you wish to stop, you have too much in non-exempt assets, you have extra income left over, or you just desire to pay your creditors back something.

BENEFITS AND DETRIMENTS

Q. What benefits will filing bankruptcy have?
A. There are several: Immediately upon filing with the bankruptcy court, whether under Chapter 7 or 13, all actions by creditors must stop. This includes repossessions, foreclosures, pending court suits, threatening correspondence and telephone calls. This prohibition on creditors is called the “automatic stay”, and is an important element of the bankruptcy code. This “breathing space” allows you the opportunity to regain control of your finances.
Q. Can I get my driver’s license back?
A. 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.
Q. Will I be able to own anything after bankruptcy?
A. As a general rule, there is no limitation on the future ability of a debtor to own or acquire real or personal property. In most cases, creditors whose claims are discharged in bankruptcy will not be able to take property or earnings acquired after the filing of bankruptcy. However, some special types of interests, such as inheritances, property settlements, and life insurance proceeds, if acquired within six months after bankruptcy, may become available for payment to creditors.
Q. What detriments from filing bankruptcy?
A. There’s no simple answer. Your credit is likely in bad shape already. Bankruptcy may actually improve the risk to a would-be lender. Bankruptcy will be part of your credit history for up to 10 years, but the experience of many of our clients is that you will be able to get credit after the discharge, if not before. The whole idea, however, is not to fall back into the same trap that got you into bankruptcy in the first place. Debit cards work the same as cash and if you have a house or car payment you continue to pay through the bankruptcy process, if paid timely this will assist you in re-building your credit score.
Q. How will bankruptcy affect my credit?
A. Bankruptcy may appear on a person’s credit record for up to ten years. It may hamper access to credit for a time. Yet, at the same time, a person contemplating bankruptcy may already have a poor credit rating. In some cases, bankruptcy may actually improve the ability to obtain credit, since many of the debtor’s former debts are discharged. Your local credit bureau may be able to provide information about the policy of lenders and creditors in your area with regard to the effect of bankruptcy on a person’s ability to obtain credit.
Q. How can I re-establish credit after I file a bankruptcy?
A. You can re-establish your credit by paying your utility bills, mortgage bills, etc. on time and by getting a “secured” credit card.
Q. Will I be able to get/keep utility service?
A. A public utility, such as an electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service.
Q. Can my employer fire me or future companies not hire me because I filed bankruptcy?
A. Employers and government agencies cannot discriminate against you because you have filed for bankruptcy.
Q. Can I lock down my fluctuating mortgage payment?
A. On July 30, 2008, the United States government passed a major housing bill designed to bring relief to home owners. Under the new law, you may be eligible to lock in a new, fixed rate. Click the following site to find out if you’re eligible: https://www.lowermybills.com/servlet/LMBServlet?the_action=LpvNextStep

THE BANKRUPTCY PROCESS

Q. Do I have to list all my creditors?
A. Yes. You must list all your creditors in your bankruptcy schedules.
Q. Can I discharge taxes?
A. In some instances, yes. Income tax can be discharged depending on the tax year and when you filed your return. Other types of taxes, such as withholdings and sales tax are not dischargeable.
Q. How long does a bankruptcy take to complete?
A. It depends on which type of bankruptcy you file. A Chapter 7 takes about 4 to 6 months, whereas a Chapter 13 typically takes 36 to 60 months. A Chapter 11 is more complex and varies depending on the issues in the case.

THE MEETING OF CREDITORS

Q. What is a 341(a) Meeting?
A. The 341(a) Meeting is the meeting of creditors. It is held about 4 weeks after you file. The Trustee asks you, in a somewhat informal setting, questions about your case, such as what caused or led you to file, whether you are working, sources of income, how you determined values for assets listed in the Schedules filed with your Petition, and many other questions.
Q. Is the 341(a) Meeting a court proceeding?
A. No. You attend with your attorney. You truthfully answer to your best knowledge questions asked by the Trustee, and sometimes by the creditors. Creditors usually don’t attend.

ATTORNEYS’ FEES AND COSTS

Q. How much are attorney’s fees?
A. The attorney’s fees charged will vary depending on the number, type, and amount of creditors involved, the extent of your assets, whether you are self-employed, which Chapter is filed, and other factors. In our office, fees are quoted during the initial conference, after filling out a questionnaire from information you provide. Ordinarily, we charge a flat fee in a consumer bankruptcy case.
Q. What are the filing fees in a case?
A. The Court charges a filing fee of $189.00 for a Chapter 13, and $274.00 for a Chapter 7 case. We can work with you in paying the fee in several installments, if necessary, over a six month period, but the attorney, transcription, and filing fees must be paid before your case is filed.
Q. What should I bring to my initial consultation?
A. A hand-written list of your creditors by name and approximate amount is sufficient. We do not need exact balances or addresses at the initial consultation. In addition, please bring an estimate of the value of any assets you own (such as cars, home, household goods and electronics, and the like). Again, exact valuations are not initially required, nor are appraisals. Estimates work just fine. A good source for checking the value of used vehicles is www.kellybluebook.com. Go there and determine both the trade-in value and the private sale value of your vehicle, then average the two amounts. That should get you a ball park figure on the value of your car.
Q. What is the fee for the initial consultation?
A. There is no charge for the initial consultation up to one-half hour. If you would like to retain our office, we need an initial payment of $325.00. This will be applied against the overall cost of the bankruptcy and services rendered and is non-refundable.

COMMERCIAL CREDITOR QUESTIONS: PREFERENCES/CLAIMS

Q. I recently got a letter from the bankruptcy court demanding that I return money my customer paid me right before filing for bankruptcy. Can they do this? I’m still owed money. What should I do?
A: You just became a member of the “double whammy” club. Not only do you have little expectation of future payment of your balance, but you are actually being told you have to return the money you were already (and probably rightfully) paid. You have received a demand to return a “preferential transfer,” the purpose of which is to recoup payments that allowed a creditor (you) to supposedly get an advantage a short time before the bankruptcy case was filed.
Not every preference demand is legitimate. Take a careful look at the deadline for returning the payment, and, if necessary, get an extension. You may have defenses against returning the money. The burden is on the bankruptcy trustee to prove that the payment should be returned under the law. Even if the demand is legitimate, you could still have a “subsequent new value” or “ordinary course of business” defense or there may be opportunities to reduce the amount. In any case, you owe it to yourself to thoroughly investigate your options before handing over a check.
Q. I have a customer who has filed for bankruptcy under Chapter 11. Even though my company is a secured creditor, I have just been informed that some unsecured creditors are receiving priority payment in the bankruptcy proceedings. Isn’t this contrary to the letter and spirit of the Bankruptcy Code?
A: Some unsecured creditors are turning the neatly arranged bankruptcy rules on their head. The unsecured creditors have likely invoked the Necessity of Payment Doctrine, also called the Rule of Necessity, and been designated Critical Vendors. Critical Vendors are unsecured creditors who provide goods and services that are critical to the bankrupt business getting back on its feet. The Rule of Necessity says that because rehabilitating a struggling business is the fundamental purpose of Chapter 11, the courts can look first at which creditors are essential to the bankrupt’s business. They get paid first to avoid a disruption in service. Other creditors with greater or equal priority interest just have to wait in line and hope there is something left over for them. Therefore, it is crucial to keep tabs on bankruptcy proceedings from the start in order to protect your interests.
Q. As a small business owner I am wary of extending credit to certain customers. But my business depends on it. How can I offer credit to customers and at the same time protect my interests?
A: There are some sound strategies you can incorporate into your business practices for tipping the scales in your favor from the start of the transaction. First, make sure your credit and sales people are on the same page. Set up a standard risk assessment protocol and follow it without fail. Second, include a confession of judgment clause in your agreements. This gives you the right to have a judgment entered against the debtor without trial. Third, get written personal guaranties from the principals of the debtor company, including partners, shareholders and, if necessary, spouses. If you are conducting business in a “tenancy by the entirety” state such as Pennsylvania, you will not be able to attach jointly held marital property to settle the debts of one spouse. Fourth, avoid offering credit on “open account.” Instead, create a security interest such as a lien on other assets of the customers. And fifth, keep tabs on your interests. Take the time to inspect your secured property to make sure it will be around if you need it. Be sure to have a credit policy that assures you will be informed of any transfers of secured property.

CHAPTER 11 BUSINESS BANKRUPTCY

Q. How will filing bankruptcy help?
A. A bankruptcy filing will not, by itself, fix a broken business. Bankruptcy gives the company breathing room to formulate a plan of action without having to fend off lawsuits from collection attorneys. It can stop an eviction, stop the taxing authority from pad-locking the door, and stop the leasing company from taking the equipment.
Q. Will my suppliers still sell to me?
A. It will vary with each supplier. Generally, once the business files, they are better protected than they were before and will sell to you.
Q. Can you sell a business in bankruptcy?
A. Absolutely. Sales of business assets are quite common in bankruptcy. It may be in the company’s best interest to sell off assets and reorganize as a small entity.
Q. Which Chapter should the company file under?
A. If you want to try to reorganize the company or, at least, control its orderly liquidation, a Chapter 11 is probably the appropriate Chapter. A Chapter 7 is a straight liquidation. A trustee will be appointed to take possession of the assets and control of the company.
Q. Are there alternatives to filing a Chapter 11?
A. Yes. Today’s lenders do not want to foreclose on your property unless they have to. Planning and communication is important. Many lenders will allow the company to do an out-of-court “work out”. It is best to consult with an experienced bankruptcy attorney to review your opinions.

CREDITORS’ QUESTIONS

Q. Should I file a proof of claim and how?
A. Yes. You want to make sure that you share in a disbursement to creditors. The claim must be filed on time with the bankruptcy court.
Q. The Debtor is not making post-petition (rent, lease, or mortgage) payments to me. What can I do?
A. Hire a lawyer to file a “stay relief motion” for you so you can get the property back or adequate protection (i.e. an assurance of monthly payments).
Q. How do I object to a Debtor’s discharge?
A. You have to file a complaint with the court. The basis for doing so is narrow and there is a short timeframe. Be sure to consult a lawyer.
Q. Will my claim be paid?
A. It depends on both the priority of your claim and the success of the Debtor’s reorganization.

POST BANKRUPTCY CREDIT QUESTIONS

Q. How do you get an old bankruptcy removed from your credit report?
A. Under the Fair Credit Reporting Act, negative information can be included in your credit reports for seven years. However, there are exceptions to this rule. Bankruptcy is one of those exceptions. Bankruptcy information may be reported for 10 years. Once the ten years are up, there’s nothing you should need to do. If for some reason a credit reporting agency keeps reporting the outdated information, click here for more information about fixing errors in your credit report.