Bankruptcy isn’t usually something people want to do. If you are like most of my clients, you never thought you would be reaching out to a bankruptcy attorney – this wasn’t the plan. But whatever happened to get you into debt can’t be undone. What can be undone is the never end cycle of paying and paying and never having enough money. Just imagine all the debt is gone – what do you want? More time with family? Savings? No more anxiety about how you are going to pay everything? When you imagine that “one day” scenario what do you see? Bankruptcy can give you a tremendous opportunity to change your life and make that “one day” a reality today.
We have a free phone consultation so we can determine if bankruptcy is right for you. We then set up an appointment to go through your case and gather information. You can then tell creditors you have an attorney so they stop calling and writing you. Once we receive the documents and payment you will take an online credit counseling class and we will file the bankruptcy. There is a court hearing you go to about 30-40 days after the bankruptcy is filed. You will also take a 2nd online class after the bankruptcy is filed.
- In a chapter 7 bankruptcy you will receive your discharge (debt is wiped away) about 2 months after your court hearing and then start rebuilding your credit (we will give you information on how to do that).
- In a chapter 13 bankruptcy you start making a payment to the trustee a month after the bankruptcy is filed. Your case is confirmed (the deadline has passed for creditors to object to your repayment plan) about 70 days later and you then start rebuilding your credit (we will give you information on how to do that). You will receive your discharge (debt is wiped away) when your repayment plan is finished (3-5 years).
No – debt settlement is where you make a monthly payment to a company and pay back a percent of your debt. Debt settlement companies typically have deals with credit card companies and know how much the credit card companies will settle for. What they don’t tell you is that:
- They pay themselves first – and they usually take a percent of the total amount of debt you owe.
- Creditors are not getting paid monthly – they are getting nothing until you have set aside enough money to offer them a lump sum payment. Creditors end up getting tired of waiting and sue you for non-payment. Once you are sued the debt settlement company can no longer help you with that bill.
- Your credit report not only takes a hit, but it keeps getting hit each month when creditors report delinquencies, late payments, increased balances, etc.
- Not all creditors will participate – you will still have to pay the ones that don’t participate.
- If/when you do settle a debt you will receive a 1099 at end of year for the amount that was “forgiven” and will have to pay taxes on that amount.
Bankruptcy – in a chapter 7 you don’t pay back your creditors (unless they are non-dischargeable or secured debt you are keeping). In a chapter 13 bankruptcy you also make a monthly payment to pay back a percent of your debt. The differences are:
- Creditors can’t sue you once you file bankruptcy – you are protected. They also can’t object to the bankruptcy just because they want more money.
- Your credit report will not continue to take hits after the bankruptcy is filed – creditors can no longer report negatively (delinquencies, late payments, increased balances, etc.). In fact, you will start to rebuild your credit as soon as the bankruptcy is filed (we will give you the information on how to do that).
- Creditors don’t have the option to not participate in the bankruptcy.
- You will not receive a 1099 after the bankruptcy for the debt that is discharged (wiped away).
Yes – it shows up in the public records section and typically stays on your credit report for 10 years.
No – it’s not going to ruin it – but you will need to work at rebuilding it (we will give you the info on how to rebuild after the bankruptcy is filed). So how much will the bankruptcy affect your credit score? That depends on what your credit report looks like now. If you have a 780 credit score, no late payments and your debt to income ratio is good then your credit score can take quite a hit when you file bankruptcy.
But if you are like most clients, you don’t have a 780 credit score, you have 30 day, 60 day or even 90 day late payments, and the amount of debt that you owe is too high when compared to your income. In order to rebuild your credit you first have to stop the bleeding (pay off the debt, stop the late payments and collections). Once you do that then you work at rebuilding your credit. Bankruptcy will do the first part immediately and then you start on the second part (there are very specific things you can do to rebuild your credit and we will give you those steps after the bankruptcy is filed). If you take the necessary steps, you can see your credit score start to increase in as soon as 6 months and can fully rebuild your credit score so that you can get a normal interest mortgage loan in 2 years. You would be able to get credit before that but would be looking at higher interest rates and less favorable options.
No – if you want to keep your house, you keep it. You continue to pay your mortgage and/or your property taxes – the loan terms do not change.
If you want to walk away from the house, you can walk away, and the mortgage debt is wiped away as to you (it’s still a lien on the house). The bankruptcy does not remove you as the owner of the house (you are still on the deed). Assuming there is a mortgage company you either wait for them to go through the foreclosure process (so they can get the deed into their name) or you can offer the mortgage company a deed in lieu of foreclosure (you sign the deed over to the mortgage company). There are also companies that will buy the house from you and rent it out until a foreclosure goes through.
No – filing bankruptcy does not mean you lose your car. You will keep paying on the car loan – the loan terms do not change.
Continuing to pay on your car loan after filing bankruptcy is one good way to rebuild your credit.
Not unless you make the decision to. When you file the bankruptcy you list everything you own (house, car, tax refund, etc.) and the law gives you exemptions to protect your stuff. If there is no exemption left to protect the tax refund we would let you know. You could then wait to file the bankruptcy until the tax refund is no longer an issue. Someone might decide to file now if they are being garnished and waiting to file would cost them more money in the garnishment versus how much they would have to turnover from their tax refund.
Not all, but a lot. You can get rid of credit cards, unsecured loans, medical bills, overpayments to social security and unemployment (assuming no fraud). You can’t get rid of child support, alimony, most taxes, student loans, and any secured debt you want to keep (house, car, motorcycle, etc.).
In theory a bankruptcy could get rid of some student loans – however, in the real world practice the answer is no. You will still have to pay on your student loans after the bankruptcy. If you need more info on student loan repayment and/or forgiveness options, we can help you with that.
Yes – any medical bills you owe as of the day the bankruptcy is filed can be wiped away. If you owe an individual doctor money, they may choose not to see you anymore if you don’t pay them. So, if you want to keep seeing that individual doctor you would want to pay their bill.
Child support, alimony and maintenance are considered domestic support obligations in a bankruptcy, and they cannot be wiped away. If you have a property settlement it is possible to wipe that away in a chapter 13 bankruptcy.
It is possible to get rid of certain income tax debt – but it’s complicated. The basic rules are you can wipe away income taxes if a) the tax return was due at least 3 years ago; b) you filed the tax return at least 2 years ago; c) the taxes were assessed at least 240 days ago; and d) there is no fraud or willful evasion. Also, if the taxing authority has taken a tax warrant, then the tax debt is now secured to all your personal and real property. Sales tax cannot be wiped away in the bankruptcy.
Yes. A chapter 13 bankruptcy will give you 5 years to repay (interest-free) the arrears you owe on the mortgage. As soon as the bankruptcy is filed you are protected. You restart making your regular monthly mortgage payment and make a monthly payment to a bankruptcy trustee to pay back the arrears. You can also stop a property tax foreclosure sale and have 5 years to pay back the property taxes (have to pay interest). You would pay any property taxes that come due after the bankruptcy is filed.
You would continue to pay on secured debt that you want to keep (cars, house, etc.). If you have non-dischargeable debt (child support, student loans, most taxes) you would continue to pay those as well. You would no longer pay on unsecured debts (credit cards, medical bills, personal loans, etc.).
Once the bankruptcy is filed no – you are protected by the “automatic stay” so a creditor can’t sue you or garnish your pay.
Before the bankruptcy is filed a creditor who has gotten a judgment against you can garnish your pay, but the process takes a while. Once you stop making payments the creditor will try to collect (send you letters and call you). Eventually the creditor (or a debt collector if the creditor has sold the debt) will file a summons/complaint in court to sue you. Letters from the creditor and/or their attorney demanding payment isn’t a lawsuit. When you are sued you get a summons/complaint from a court. Once you receive the summons/complaint you have 20-30 days to file an answer (we can help you with this). Filing an answer will prevent a judgment from automatically happening. If a judgment does happen, the creditor/debt collector sends that judgment to the Sheriff’s Office to start a garnishment. The Sheriff’s Office will send you a letter giving you about 20 days to set up a payment schedule with their office or they will forward the garnishment info to your employer. Once the bankruptcy is filed this process will stop at whatever step it is at.
Yes – and if your paycheck is garnished after the bankruptcy is filed (because your payroll had already been processed before the bankruptcy was filed) you will get back the money that was taken after the bankruptcy was filed.
Yes – as soon as the bankruptcy is filed you are protected by the “automatic stay”. This prevents any creditors from calling you, sending you demand letters, continuing or starting a lawsuit, continuing, or starting a garnishment, and continuing or starting to freeze bank accounts.
Bankruptcy will stop the judgment from continuing (stop the lawsuit, garnishment, collection, etc.) and remove your obligation to pay it. The fact that the judgment happened will still show up in the county clerk’s office. If you own land in the county where the judgment was filed there is a lien on that land. You can remove a lien from land you currently own with a motion to avoid judgment lien after the bankruptcy is filed. If you purchase land after filing bankruptcy the judgment will not attach to that new land.
Yes it’s possible – but it’s rare. If someone charged a lot on their credit card right before the bankruptcy was filed or misrepresented their income on a loan application, then a creditor could object. We screen your case to catch any potential issues that a creditor or the bankruptcy court would have with your bankruptcy case before the bankruptcy is filed. If there are issues, we will let you know and give you options on how to turn those issues into non-issues. Our goal is the same as yours – clear away the debt and get you a fresh start.
Yes – in fact you will want to get one after you file bankruptcy to help rebuild your credit. We will give you info on how to rebuild your credit after the bankruptcy is filed.
If you previously got a discharge (debts wiped away) in a chapter 7 bankruptcy you aren’t eligible to get another chapter 7 discharge for 8 years. You can get a chapter 13 discharge after 4 years. If you don’t need a discharge (trying to stop a foreclosure) you can file again before these deadlines.
Any co-signed debt can be wiped away on your end (you would not be responsible to pay it anymore), but the other person would still be responsible to pay it.
This only applies for debts you owe to a credit union and only debts that are not a mortgage loan. If you owe a car loan and a credit card at a credit union, they are cross collateralized, which means that the credit union considers them linked together. So, you can either keep them both or surrender them both (i.e you would have to pay the credit card to keep the car or surrender the car to wipe away the credit card). Whether it makes sense to keep all the credit union debt is a case-by-case situation and we would go over your specific case with you. If you want to keep your car loan at the credit union and you owe $1,000 on a credit card and you want to keep both, and your budget shows you can afford to pay on both, then that makes sense. But if you are already under water on your credit union car loan and then owe other $10,000 on a credit union credit card you would want to take the opportunity to walk away from both. We would work with you on how to get another vehicle.
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The team at Grady BK, PLLC, is here to help answer any bankruptcy questions you may have.
Call (315) 299-9005 today to get started with a knowledgeable bankruptcy attorney.