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Bankruptcy FAQ

1. What is bankruptcy?

2. How do I stop the phone calls?

3. Are student loans discharged in a bankruptcy proceeding?

4. What effect does a bankruptcy filing have on the collection of alimony and child support?

5. How does bankruptcy affect my debt?

6. Will I lose my home or property?

7. Do I have to list all my credit cards?

8. Who will know? Will I lose my job?

9. How long are bankruptcy and other credit information included on my credit report?

10. How sure can I be that my bankruptcy will be granted?

11. What if I don’t do anything?

12. Can I get relief from my taxes or student loans?

13. Are student loans discharged in a bankruptcy proceeding?

14. What’s the difference between Chapter 7 and Chapter 13 bankruptcy?

15. Am I eligible to file for bankruptcy?

16. Can I file a second time?

17. Who can help me explore my multiple bankruptcy filing options?

18. What is the difference between private debt management and bankruptcy in Louisville?

19. Should both spouses file?

 

1. What is bankruptcy?

Bankruptcy is a federal program established to offer a way out of seemingly insurmountable debt. There are two types of personal bankruptcy. Chapter 7 bankruptcy allows discharge of debts without requiring payments to the court and usually allows keeping items like houses, cars and household goods. A Chapter 13 bankruptcy is for people who earn more money or who are delinquent on things they want to keep like houses or cars. Chapter 13 requires 36-60 payments to the court to repay the delinquency or a percentage of the debt.

You can determine the chapter appropriate for you by determining your gross income or by completing a federal means test. If you earn more than the mean income in the state, you may still be eligible for a Chapter 7 if you pass the means test. If you fail them both you may be better suited for a Chapter 13 partial repayment plan.

A Chapter 13 plan is not a death sentence. It simply means that you will be required to make payments for a period of time. It may not even result in paying more money to creditors than you would in a Chapter 7.

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2. How do I stop the phone calls?

One of the only sure ways to stop the collection calls is to actually file the bankruptcy petition. Once filed an automatic stay goes into effect and most collectors can no longer call you. Although very effective, this is not the only tool to stop harassing phone calls.

You don’t need bankruptcy to stop creditor phone calls and harassment. Federal law prohibits debt collectors from calling once you tell them in writing to stop. Under the Fair Debt Collection Practices Act, a collection agency may not act in the following ways:

    • Third-party communications. The collection agency cannot contact third parties other than the debtor's attorney or a credit bureau for any reason other than to locate the debtor. Collection agents who contact third parties must state their names, and may only add that they are confirming or correcting information about the debtor. They cannot give the collection agency's name unless asked directly. They cannot state that they are calling about a debt. Collection agents may not contact a third party repeatedly unless they believe an earlier response was wrong or incomplete and that the third party has revised information. Further, collection agents cannot communicate with third parties by postcard or by correspondence that uses words or symbols that betray their collection motive.
    • Attorney-represented debtor. A collection agency cannot contact the debtor directly if counsel represents him or her unless the debtor gives the collection agency specific permission to do so.
    • Debtor communications. Collection agents may not contact debtors before 8:00 a.m. or after 9:00 p.m., or at another inconvenient time or place. Collection agents also may not contact a debtor at work if he or she knows that the employer bans receipt of collection calls while on the job.
    • Harassment or abuse. Agents cannot threaten or use violence against the debtor or another person. They cannot use obscene or profane language. They cannot publish a debtor's name on a blacklist or other public posting. Agents cannot call repeatedly or contact the debtor without identifying themselves as bill collectors.
    • False or misleading statements. Agents may not lie about the debt, their identity, the amount owed, or the consequences for the debtor. They cannot send documents that resemble legal filings or court papers. Agents cannot offer incentives to disclose information.
    • Unfair practices. Agents may not engage in unfair or shocking methods to collect, including adding interest or fees to the debt, soliciting post-dated checks by threatening criminal prosecution, calling the debtor collect, or threatening to seize property to which the agency has no right.

Even if you orally tell debt collectors that you never intend to pay, the law prohibits them from contacting you except to send one last letter making a final demand before filing a lawsuit. It is difficult to police this action, even with the federal law protecting you, so these efforts may or may not be successful.

Another effective way to stop the phone calls is to know your rights. If a caller threatens to sue you, judgments are normally as easily dischargeable in bankruptcy as credit card debt. After you have decided on bankruptcy, this threat really has little meaning.

Additionally, if your only income is from social security or disability a lawsuit will do little to help collection efforts. At this point, you may be judgment proof and may not even need a bankruptcy.

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3. Are student loans discharged in a bankruptcy proceeding?

Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 or Chapter 13 bankruptcy. They may be dischargeable; however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents.

In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.

The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility: (1) income-if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents; (2) duration-the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period; and (3) good faith-the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.

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4. What effect does a bankruptcy filing have on the collection of alimony and child support?

A Chapter 7 filing should have no effect on such collections.

Although filing bankruptcy stops, or stays, all efforts to collect debts, the Bankruptcy Code excludes actions to collect child support or spousal maintenance from the stay unless the creditor attempts to collect from the property of the estate.

In a Chapter 7 proceeding, property of the estate includes all possessions, money, and interests the debtor owns at the time of filing. Money earned after the bankruptcy is filed, however, is not property of the estate. Since most child and spousal support is paid out of the debtor's current income, the bankruptcy should have little impact.

A debtor under Chapter 13 must pay all domestic support obligations that fall due after the petition is filed. Failure to do so could result in dismissal of the case. Neither a Chapter 7 nor a Chapter 13 discharge affects future child or spousal support obligations. In other words, even at the conclusion of the bankruptcy proceeding, these on-going obligations remain.

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5. How does bankruptcy affect my debt?

Debts are commonly separated into at least two broad categories, Secured and Unsecured. Secured debts are those where you may lose something if you don't pay such as a home or a car loan.

An unsecured debt is one where you have not pledged collateral or in which a lien has not been filed against you. Unsecured debts include credit cards as well as most other debts. Most judgments are also unsecured and can be easily discharged in bankruptcy.

Unsecured debts are normally dischargeable in bankruptcy. There are exceptions to the rule such as if the debts were incurred in anticipation of bankruptcy or within 90 days of filing or if there is some fraud associated with the transaction. Unsecured debts that were incurred to pay non-dischargeable taxes and/or student loans or associated with alcohol or malicious offenses may also be non-dischargeable, are also suspect.

Secured debts are treated completely different. If you want to retain your house or your car and you are current on your payments you will normally be able to keep them if you want to continue to make the payments. If you are not current and want to keep your secured property, you will likely be able to keep the property by entering into a repayment plan for the arrearage with the court. If, however, you want to forfeit the property and not make any more payments or incur any more debt associated with the property, even if you owe more than the property is worth, is an option as well.

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6. Will I lose my home or property?

Bankruptcy is designed to give a fresh start, not to leave you destitute. You are entitled to keep certain property. This property is commonly referred to as exempt. Most people would not be forced to liquidate any of their property in a bankruptcy filing. In addition to not losing your property, you may be able to redeem your secured personal property and only pay the value of the property instead of what you owe.

For example, if you owe $10,000 on your car but it is only worth $5,000, my law firm works with the court and auto financiers to obtain the court order that you only pay the $5,000 value of the car.

One of the debtor's major concerns in a consumer bankruptcy is the thought of losing the family home. Although that is possible in some cases, loss of the debtor's home need not always result from a bankruptcy filing.

If the debtor in a Chapter 7 liquidation bankruptcy is behind on his or her mortgage payments, the home could be lost. The mortgage lender in such cases usually asks the bankruptcy court to lift the automatic stay so that it can institute foreclosure proceedings, in which case the home will be sold and the proceeds used to pay off the debt.

Whether a debtor who is not behind on mortgage payments will lose his or her house, depends on how much equity the debtor has in the property and the amount of the state homestead exemption. If the amount of debt owed on the home is less than the home's market value, the debtor could lose the house unless the homestead exemption entitles the debtor to most of the equity.

In a Chapter 13 proceeding, however, even if the debtor is behind on mortgage payments, if the wage-earner plan includes paying back any missed mortgage payments and current payments are paid when due as well, the debtor should not lose his or her home. If the debtor is current on his or her house payments, the home will not be lost if the debtor continues to make payments when due.

If the debtor is a renter rather than a homeowner, and if the debtor is current in his or her rent payments, it is unlikely that the lessor would even become aware of the bankruptcy proceeding. If the debtor is behind, however, he or she could be evicted. Even after the automatic stay is triggered by the bankruptcy filing, the landlord is likely to ask the court to lift the stay on its behalf, and the court is likely to grant that request.

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7. Do I have to list all my credit cards?

No, unless the trustee tells you to. You must list all of your debts. If you have a credit card with no balance, it is not considered a debt and does not need to be listed on the bankruptcy petition. The credit card may or may not survive the filing. The creditor can choose with whom they choose to do business and my cancel the card anyway, but you can be armed with this information before you file.

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8. Who will know? Will I lose my job?

No employer (government or private) can fire you or discriminate against you because you file for bankruptcy protection. However, bankruptcy will not prevent an employer from firing you for other reasons and there are a very few jobs that are allowed to consider creditworthiness in hiring. No federal, state or local government agency can take your bankruptcy into account when making a hiring decision, but there is no such bar for private employers.

Employers and others usually are not informed of a bankruptcy. It is a public filing, but unless they are in some way involved in the bankruptcy, they will not receive notification. If you owe money to a party or otherwise list them in your petition, they will receive notice. This usually does not include your employer unless you are being garnished or a creditor has involved your employer in their collection activities.

The same holds true for your family. Unless they have some stake in the bankruptcy, they are not sent notice. Unfortunately, any party can learn of a bankruptcy through an easy internet search or any public record report.

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9. How long are bankruptcy and other credit information included on my credit report?

A consumer credit report may include Chapter 7 and Chapter 13 bankruptcy information for ten years from the time the case is filed. One major consumer credit reporting agency is said to remove Chapter 13 information after only seven years, but it is not legally required to do so.

Most other credit information can be included in a consumer credit report for seven years. Civil suits, civil judgments and arrest records, however, can be reported for at least seven years, and longer if the information is relevant for a longer time period. For example, if the civil judgment against the debtor is valid for ten years, it can be reported for credit-rating purposes for the same time period.

These time limits on reporting credit information do not apply to reports for credit transactions that involve or are reasonably expected to involve a principal amount of $150,000 or more, the underwriting of life insurance involving or reasonably expected to involve a face amount of $150,000 or more, or the employment of a person at salary that is or is reasonably expected to be at least $75,000 annually.

Because both the Fair Credit Reporting Act, which controls what a credit-reporting agency may include in a consumer's credit report, and the Bankruptcy Code are federal law, the same rules apply in all states. There may be some differences, however, in relation to the more-than-seven-year information, since most of the relevant time periods or statutes of limitations are found in the individual states' laws.

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10. How sure can I be that my bankruptcy will be granted?

Bankruptcy is presented by the federal government as a way to relieve your debts. As a citizen, you are eligible to take advantage of the government program. It is not something you have to invent or talk them into. As long as you play by the rules, your bankruptcy will likely be granted.

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11. What if I don’t do anything?

There are many instances when bankruptcy is not the right option. For example, if all of your income is a result of disability or social security payments, and you have no assets, you may be judgment proof and there would be nothing for creditors to take.

If you have been threatened with a lawsuit or if you have been sued, you may choose to ignore such filing. This will not extinguish the debt or address the situation. This will only prolong the inevitable. Once the requisite time has passed, a judgment will likely be taken. After this, the plaintiff will be able to proceed against your assets or your income. This is not usually the best option.

If you have not been sued, remember that unsecured creditors usually (except student loans and taxes) must sue in order to collect. They cannot garnish your wages or take other actions without suing you. You cannot be thrown in jail for not paying your debts and your creditors cannot collect money that you do not have.

Before determining whether inaction is the best action, consider your budget. Write out all of your expenses and all of your income. If you cannot pay your expenses from your income and cannot find a way for the numbers to match, it is a foregone conclusion that your debt will likely someday overtake you.

At this point bankruptcy is usually one of your best options.

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12. Can I get relief from my taxes or student loans?

Some taxes will go away in a bankruptcy but not student loans. If it requires an attorney with lots of experience in taxes like Julie O’Bryan, owner of O’Bryan Law Offices, to know for sure what types of taxes are dischargeable in bankruptcy. For more information, contact Julie today at 502-400-4020 and put your mind at ease. You will be glad you did.

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13. Are student loans discharged in a bankruptcy proceeding?

Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 or Chapter 13 bankruptcy. They may be dischargeable, however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents.

In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.

The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility: (1) income-if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents; (2) duration-the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period; and (3) good faith-the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.

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14. What’s the difference between Chapter 7 and Chapter 13 bankruptcy?

There are many differences, but the most obvious one has to do with debt repayment. In a basic Chapter 7 case, the debtor files a petition and schedules of assets and debts, attends a meeting with the trustee, turns over nonexempt assets if any, waits to see if anyone objects to discharge, and walks away from most unsecured debt immediately.

Chapter 13 debtors have to repay a portion of their unsecured debts in monthly installments over a period of three to five years. This isn't as bad as it sounds. Most Chapter 13 plans in Kentucky and Indiana pay about 10 cents on the dollar to unsecured creditors.

The most significant benefit of Chapter 13 consumer bankruptcy is the debtor's ability to hold on to nonexempt assets that would be subject to liquidation in a Chapter 7 case. At the completion of the repayment plan, the debtor gets a discharge on the unpaid portion of the claims.

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15. Am I eligible to file for bankruptcy?

Are you interested in filing for bankruptcy but are unsure who is eligible to file for bankruptcy? Are you struggling with debt and debt payments, but suspect you make too much money to qualify for debt relief through bankruptcy?

Our firm will explain the bankruptcy eligibility requirements at no cost to you during a no-charge initial consultation. Our attorney team has practiced bankruptcy law in the Louisville area since 1994 and has the knowledge and experience to answer your questions and provide comprehensive bankruptcy law legal services.

The most recent changes to the bankruptcy law made changes to the eligibility requirements, but the vast majority of individuals who would have been eligible before the changes remain eligible now.

Even if the means test disqualifies you from Chapter 7 we have found that we are still able to find debt solutions for people who have the desire and the need for bankruptcy relief.

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16. Can I file a second time?

Two myths abound regarding filing for bankruptcy more than once. The first is that, people cannot file a second time. The other myth is that second filings were made much more difficult when bankruptcy laws were amended recently.

The truth is, you can file bankruptcy more than once, even following recent changes to bankruptcy laws. The most common scenario in multiple filings is to file for Chapter 13 bankruptcy after having filed Chapter 7 bankruptcy. Why? While debtors must wait eight years to file Chapter 7 a second time, they can often file Chapter 13 almost immediately after filing for Chapter 7.

How does this work? Chapter 7 allows for the sale, in most cases, non-exempt property and the elimination of debt. Chapter 13, in most cases, allows for a court-approved payment plan at lower monthly payments and with a quicker paid-off date.

The result? Often after bankruptcy, debtors can successfully pay off their car, reduce or eliminate other debt and keep and remain in their home. Under Chapter 13, debtors can in some cases fully eliminate a second home mortgage because, in today's depressed real estate market, second mortgages are often no longer secured by home equity.

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17. Who can help me explore my multiple bankruptcy filing options?

While many people are uncomfortable with the idea of filing for bankruptcy a second time, multiple filings are common, can effectively resolve financial challenges and can save thousands of dollars.

At the Louisville, Kentucky bankruptcy law firm of O’Bryan Law Offices, we have handled thousands of bankruptcy cases, including many second filings. For more information about our firm and your bankruptcy rights and options, contact our offices.

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18. What is the difference between private debt management companies and bankruptcy in Louisville?

Should I consolidate debt? This may be a question you have asked yourself if you feel as though you are swimming in debt. Debt can present a number of stresses in a person's life. Knowing all of your options for debt relief is something that you should take time to learn. The bankruptcy attorneys at our firm are here to provide objective and knowledgeable legal advice.

With office locations in Louisville, New Albany and Frankfort, Kentucky, O’Bryan Law Offices serves clients throughout Kentucky and Southern Indiana in a wide range of consumer bankruptcy law matters. Our firm is known for the services we provide and are committed to providing each of our clients with the individualized attention they deserve. We know the challenges our clients face and are here for support and guidance.

Debt consolidation companies will advertise that debt consolidation is a good alternative that will allow you the same amount of debt relief without having to file for bankruptcy. In reality, bankruptcy is almost always a better option for individuals. Debt consolidation companies are not regulated by laws like bankruptcy attorneys and often make promises that they cannot keep.

Take initiative and learn about your options for debt relief. An experienced attorney in our firm will educate you about bankruptcy in Kentucky and give you the information you need to make a smart decision. We have helped thousands of people get the debt relief they need.

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19. Should both spouses file?

One confusing element that often deters individuals and couples from pursuing the benefits of bankruptcy protection is the question "do both spouses have to file bankruptcy?" A commonly believed bankruptcy myth is that a married person cannot file for bankruptcy without filing jointly with his or her spouse. The truth is, individuals can file for bankruptcy without the participation of their spouse.

At O’Bryan Law Offices, we provide the legal counsel needed to make informed, advantageous decisions regarding the filing of Chapter 7 or Chapter 13 bankruptcy. Firm founder, Julie O’Bryan has over 20 year’s experience in bankruptcy and litigation experience and have handled tens of thousands of bankruptcy cases.

Each bankruptcy case differs from the next and needs to be personalized and tailored to the facts and circumstances of each case. Is the bulk of your property owned jointly by you and your spouse as marital property? Do either of you have separate property? Is one spouse interested in filing for bankruptcy while the other is anxious to avoid it? We can help you make strategic decisions.

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Contact O'Bryan Law Offices Today