Top Things to Know About Bankruptcy

Won’t Bankruptcy kill my credit?

By law the fact of your Chapter 7 bankruptcy filing stays on your credit report for 10 years.  At the same time, I tell my clients that they will receive credit card solicitations in the months after their bankruptcy case closes.  Throw them in the trash.  Better options exist. For one, read the fine print and you will find excessive, whopping – you pick the adjective–interest rates

Better options include keeping your modest car and car loan or purchase a modest car with an affordable payment.  Then, pay that loan regularly.   A consistent pattern of payment boosts your credit.  Another option comes in the form of a secured credit card.  Many banks and financial institutions offer these.  This acts like a normal debit card on your end.  Put in $500 or whatever amount you want.  Spend up to that amount.  But the secured credit card reports to the credit agencies as if it’s a credit card.  Use this only for regular known expenses such as gas for the car and groceries.  Again, this regular credit payment boosts your credit.

Do I have to go to Court if I file Bankruptcy?

Bankruptcy courts run on electronic filings.  So the filing of bankruptcy paperwork happens electronically.  Thirty days after the filing, you appear at a creditors meeting, but this is handled by an attorney appearing in the capacity of a trustee, not a judge and it’s not in a courtroom.  After that, unless complications arise, most people who file consumer bankruptcies never actually go to court.

“A debtor’s involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case.”

U.S. Bankruptcy Court Website

The exception comes up if a creditor claims fraud, such as excessive use of credit prior to the filing of the case.  Another exception arises if, for example, a mortgage is in arrears and the mortgage company wants to pursue foreclosure.

What do I have to do before filing Bankruptcy?

First, do not use credit cards for 90 days before the case is filed.

Second, Bankruptcy law requires people to do “credit counseling” before they file.  One of the big credit reporting agencies scares people by warning them they must meet in person or in a group with a credit counseling agency.  This is false.

While bankruptcy filers must do credit counseling prior to filing this can be done online.  Those uncomfortable with computer contacts simply call a toll-free number for their counseling.  My office keeps a list of certified credit counseling providers able to help with this.  After you participate privately, online or on the phone, they send your required certificate directly to my office.

Will I lose my stuff if I file Bankruptcy?

Bankruptcy law allows you to keep certain property if it is exempt.  You must disclose everything you own, vehicles, your home if you own one, collections and everything else.  If available exemptions match, you keep the property.  Sounds simple, right?  Federal law covers bankruptcy so you would think a uniform federal law provides the exemptions.  And there’s a long list of federal bankruptcy exemptions.

The rub comes in the fact that some states do not allow petitioners to claim federal exemptions.  Those states chose to “opt out” of the federal exemption system.  On the other hand, in some other states, those filing bankruptcy can select either their state’s exemptions or the federal exemptions.  But once you pick one or the other, you’re stuck with either the state or federal and may not pick and choose.

Bottom line: fully exempt property is yours to keep.  In the experience of my office the average person or family facing bankruptcy as an option will keep everything, if they are living modestly and if they correctly select valid exemptions.

I don’t just have credit card debt, if debt collectors have sued me in court isn’t it too late?

What bankruptcy law calls the “automatic stay” freezes all collections, including lawsuits, the moment your bankruptcy petition is filed.  When clients bring lawsuit papers to my office, we file a “Suggestion of Bankruptcy” sometimes also called a “Notice of Bankruptcy” with the court where they’re being sued.  This happens after the bankruptcy petition is filed.  By federal bankruptcy law the collection case stops.    So long as your case proceeds successfully to the end and you receive a formal discharge, those collection civil cases are dismissed permanently.

Many observers believe that the automatic stay of bankruptcy, which carries the force of a federal court injunction, provides the most important benefit to those filing bankruptcies.

Do I need a lawyer to file Bankruptcy?

Yes and no.  Don’t you hate when people answer questions that way?    The reason I say that is based on the volume of paperwork required in even a simple chapter 7 bankruptcy.  Beyond the roughly 6-page petition itself there are ten Schedules, A through J.  A detailed “Statement of Financial Affairs” requires details including your financial status and pre-bankruptcy transactions.

Another multi-page form known as the “Statement of Your Current Monthly Income” gives you what they call the “Means Test.”  Pass and you qualify to go ahead and file Chapter 7.  Flunk and one option might be to file the more time-consuming Chapter 13.

You can go to the federal bankruptcy court’s web site and view these forms for yourself.  If it looks like a lot of fun sitting down at the kitchen table with a cup of coffee and simply filling out forms, remember a few things:

1. Bankruptcy law requires full complete detailed information and strict compliance with the terms of U.S. Bankruptcy Code.
2. You sign everything under the pains and penalties of perjury.  Someone from the U.S. Justice Department’s Trustee Program reads all the petitions shortly after they’re filed.
3. Good news comes in the fact you can almost always file amendments if there are problems in the papers you file.  Bad news comes with all the required paperwork to amend.  Along with the amended form that has to be changed, you must also file a cover sheet, a “Notice of Amendment”, sometimes a new “Summary of Assets and Liabilities”, and also a “Declaration Regarding Electronic Filing for Petitions and Schedules”.  Finally, if you add new creditors you omitted from the initial forms you filed, you now face an additional fee.

Top things to know about bankruptcy

Summarizing the somewhat complex bankruptcy law presents challenges.  By now you know that disclosing everything you own and finding correct exemptions ranks high on the list.  Reviewing the paperwork prior to filing also assures fewer problems down the road.  Further, once filed, the automatic stay in fact stops collection lawsuits.

How long does a Chapter 7 Bankruptcy take?  Here’s the average timeline.

The author of this article, Andrew D. Myers, files consumer bankruptcies in New  Hampshire and Massachusetts.  Such filings include Chapter 7 and Chapter 13 bankruptcy.  The Law Offices of Andrew D. Myers offer services at offices in Derry, New Hampshire and North Andover, Massachusetts.

More on the Automatic stay of Bankruptcy here.

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