What exactly is bankruptcy? Will it wipe out all my debts?
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as “liquidation” (Chapter 7) or “reorganization” (Chapter 13). Under a Chapter 7 bankruptcy, you ask the bankruptcy court to wipe out (discharge) the debts you owe. Under a Chapter 13 bankruptcy, you file a plan with the bankruptcy court proposing how you will repay your creditors. You must repay some debts in full; others may be repaid only partially or not at all, depending on what you can afford.
When you file either kind of bankruptcy, a court order called an “automatic stay” goes into effect. The automatic stay prohibits most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.
Certain debts cannot be discharged in bankruptcy; you will continue to owe them just as if you had never filed for bankruptcy. These debts include back child support, alimony and certain kinds of tax debts. Student loans will not be discharged unless you can show that repaying the debt would be an undue burden, which is a very tough standard to meet. And other types of debts might not be discharged if a creditor convinces the court that the debt should survive your bankruptcy.
Am I free to choose between Chapter 7 bankruptcy and Chapter 13 bankruptcy? Which type of bankruptcy should I use?
If you meet the eligibility requirements for both types of bankruptcy, then you can choose the type of bankruptcy that makes the most sense for your situation. However, you may not have a choice.
Under the new bankruptcy law, filers whose incomes are higher than the median income for a family of their size in their state may not be allowed to file for Chapter 7 bankruptcy if their disposable income, after subtracting certain allowed expenses and required debt payments, would allow them to pay back some portion of the unsecured debt over a five-year repayment period.
Also, if you have secured debts of more than $1,010,650 and unsecured debts of more than $336,900, for example, then you cannot use Chapter 13 bankruptcy.
Most people who file for bankruptcy choose to use Chapter 7, if they meet the eligibility requirements; Chapter 7 is a popular choice because, unlike Chapter 13, it doesn’t require filers to pay back any portion of their debts.
However, Chapter 13 might be a better choice, depending on your situation. For example, if you are behind on your mortgage and want to keep your house, you can include your missed payments in your Chapter 13 plan and repay them over time. In Chapter 7, you would have to make up the whole past due amount right away – and you might lose your house, if your equity exceeds the exemption amount available to you.
Can my car be repossessed without warning?
In many states, if you are behind in your car payments, the lender can “repossess” your car without warning or even leaving a calling card. The lender (or, more likely, the repossession company that the lender hires) can hotwire your car or use a duplicate key and drive it away from any location. The only limitation is that they can’t illegally enter your locked home or garage.
Don’t wait around for that lurking repo man to find your car. Instead, take action. First, determine whether your inability to pay your car note is temporary or long-term. If it’s temporary, immediately contact your lender, explain your situation and try to work out a short-term solution (maybe adding the missed payment to the end of the loan term). Or, borrow money from friends or family to get current on your car loan.
If you know you will not be able to continue to pay for your vehicle, it is likely that you are having other financial issues and a bankruptcy may be able to help. Contact us for a free consultation to learn how an experienced bankruptcy attorney can help protect your vehicle and other assets. We serve clients throughout DuPage County, including Naperville and Wheaton.
When do I owe my spouse’s debts?
Whether you are liable for your spouse’s debts depends on whether you live in a community property or common law property state.
Whether you and your spouse are liable for each other’s debts depends mostly on where you live. In the handful of states with “community property” rules, most debts incurred by one spouse during the marriage are owed by both spouses. But in states that follow “common law” property rules (for example, Illinois), debts incurred by one spouse are usually that spouse’s debts alone, unless the debt was for a family necessity, such as food or shelter for the family or tuition for the kids.
These are general rules in bankruptcy; you may contact us for a free consultation and then a skilled attorney will be able to address your specific issues.
If we’re foreclosed on, when do we actually have to leave our house?
Like many homeowners, you may be picturing your once-so-friendly loan office showing up at your doorstep, unannounced, to escort you out. That won’t happen.
Your bank’s actions at this point are governed by your state’s laws, often with the help of the state court system. In most states, it takes somewhere between two and 12 months before you’re given a date by which you must leave. That date is usually based on when the property has actually been sold. In fact, you may need to stay in your house until the sale is completed, so that you won’t have “abandoned” it. Abandonment can bar you from access to local assistance programs.
Some homeowners push matters and don’t leave by the date they’re supposed to. They wait for the bank to get an eviction order and send a sheriff to enforce the order. We don’t, however, recommend that strategy, which is demoralizing and leaves you with very little control over your departure.
Whether you plan to keep your home or would like to walk away from it, the timing of filing a bankruptcy is crucial. Contact our firm for a free consultation to discuss your options with an experienced attorney.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.