Frequently Asked Questions
From Bankruptcy To Beyond
Bankruptcy is complex and is changing, the following will provide you with some frequently asked questions on the topic of bankruptcy, but if you have further questions, we can help. Feel free to contact us with any specific questions you may have on how bankruptcy could help you get a fresh start. If you have additional questions, or would like to speak to someone about your specific situation, do not hesitate to call our experienced bankruptcy lawyers at 888-255-8995.
If I ignore my creditors won’t they eventually just go away?
This is a more common question than you might think. From a theoretical standpoint you do have three options when you have financial problems. One option you always have is to file bankruptcy. Option two is to work out a deal to pay off your creditors. This second option obviously works for very few people either because they don’t have enough money to work out arrangements with their creditors or their creditors are simply not willing to work with them. The third option is to do nothing. This third option, however, also works for very few people. That’s because eventually one or more of your creditors are likely to sue you and get a judgment against you. As mentioned in the preceding section, a judgment is essentially a court order that allows the creditor to confiscate money or assets from you up to the dollar amount of the judgment. This judgment will also last for many years. So where you may not have anything for them to come and take or garnish now, that may not be the case years from now, if you are able to get yourself to a different place financially. Remember, at any point during the life of the judgment the creditor can and will take assets from you even though you may not have owned that asset at the time the judgment was issued. Therefore doing nothing is usually not a reasonable option, unless you’re very old, don’t have any assets, and are not likely to acquire anymore assets in the future.
Won’t I lose my Retirement Savings if I file for Bankruptcy?
In most states all, or virtually all, retirement account and pension plan funds are exempt from creditors, meaning you get to keep them if you file for Chapter 7 bankruptcy. There are some limitations depending on where you live so you should always remember to ask your bankruptcy attorney this important question. In the states where I practice predominantly my clients are able to protect all of their retirement savings. In Chapter 13 bankruptcy, because your retirement accounts are exempt, they won’t affect how much you must repay unsecured creditors.
Plans subject to this exemption include the most common types of pension plans, such as:
- IRAs (Roth, SEP, and SIMPLE)
- Profit-sharing plans
- Money purchase plans, and
- Defined-benefit plans.
Although the funds in your retirement accounts may be exempt from creditors, retirement benefits that are paid to you as income are not exempt. For instance, for the purposes of Chapter 13 bankruptcy, this kind of retirement income is included in your repayment plan and will help determine what portion of your unsecured debts you must repay.
What can a creditor do to me?
Debt collection is a three step process. They can contact you to collect the debt but they may not make any idle or illegal threats – such as throwing you in jail, reporting you to social services, or taking your belongings that aren’t connected to the debt itself. Then they may obtain a judgment against you for the money owed. This judgment lasts 10 years. During that time, they may attempt to levy your property. This usually involves garnishing your bank accounts. If a creditor sends you a note or an exemption form because they are enforcing a judgment, this is a very serious situation – Call our office immediately.
What will bankruptcy do about the collection agencies that keep harassing me?
As soon as your case is filed, the Bankruptcy Court issues what is called an Automatic Stay. The automatic stay forbids your creditors from contacting you or taking any action to collect the debt. The Federal Courts impose strict penalties on creditors for willful violation of the automatic stay.
Don’t I have to give up everything I own if I file for bankruptcy?
Absolutely not! North Carolina and Florida law sets up exemptions that will protect your assets from creditors. We will determine if you can keep everything you own under NC or FL law before you file for bankruptcy protection. Most of our clients who are eligible for Chapter 7 Bankruptcy are able to keep everything they own while completely wiping out their unsecured debt. If you cannot protect everything, you may decide to file for Chapter 13 Bankruptcy protection.
I have been told if I file for bankruptcy I will lose my home, is this true? Can I keep my home?
This is completely false. One of the main purposes of bankruptcy is for people to protect their assets, like their home, from their creditors. If you are current on your payments, you can protect your home’s equity from creditors and keep your home in a bankruptcy. At a minimum, North Carolina individuals can protect $35,000 worth of equity in their primary residence or $70,000 for married couples – this protected equity amount is unlimited for Florida individuals and couples. If you are behind on your mortgage payments, there are options under Chapter 13 Bankruptcy to catch up on your payments and keep your home even if it has gone into foreclosure.
I am married, do both of us have to file bankruptcy?
No. You can file individually. Whether you should or not depends on who is legally liable on the debts that you have, but if you have individual debts then it is safe for you to file individually. However, if you have joint debts with your spouse it is not a good idea to file an individual bankruptcy. If only one joint debtor on a joint debt files bankruptcy, the other joint debtor who did not file bankruptcy is still liable for the debt. The nice thing though is that, if you both have to file bankruptcy, a husband and wife can file a joint case for no extra cost. That’s like getting two bankruptcies for the price of one.
If I file for bankruptcy, won’t everyone know I have filed?
Usually not. While a bankruptcy filing is public court record, it is not easy for most people to find. It is on a court database that is not searchable from websites like Google or Yahoo. It is rarely reported in the newspaper unless it involves someone famous. If you are concerned about this, you can check your local newspaper to ensure that it does not report local bankruptcies before we file.
If I filed bankruptcy previously, can I file again?
Yes, but how long you have to wait to re-file depends on the type of bankruptcy that you initially filed and the type of bankruptcy you now wish to file. The time periods vary from two years to eight years.
If I file for Chapter 13 Bankruptcy Relief, will I have to make monthly payments to every creditor?
No. This is why Chapter 13 bankruptcy is a debt consolidation. We will determine your payment based on what you can afford on a monthly basis. You will then pay this amount to the bankruptcy trustee and he or she will distribute that money to your creditors. At the end of your bankruptcy plan, any unpaid portion of your dischargeable unsecured debt (credit cards, medical bills, personal loans, etc.) is completely wiped out.
What kinds of debts can I not eliminate under bankruptcy?
You cannot eliminate student loans, certain tax debts, or court ordered support payments. You also cannot eliminate some debts incurred within 60 to 90 days of filing for bankruptcy. You cannot eliminate secured debts (such as mortgages or car loans) for personal and real property that you plan on keeping.
What about the companies I see on TV that say they will wipe out my debts without bankruptcy?
There are many unfounded claims being made by agencies that do not have the right to practice law. The Federal Trade Commission recently warned of these “credit repair” scams. The truth is, these companies depend on your creditors voluntarily agreeing to reduce your debt in exchange for your lump sum payment. Unlike legal debt relief, they cannot force your creditors to stop harassing you or even to participate in the deal. They cannot stop collection agency harassment or judgments against you. Only legal debt relief can. Furthermore, they usually charge far more to reduce a few of your debts than any attorney charges to legally eliminate all of the same debts. If you are serious about dealing with your debt, please talk to an attorney before you consider one of these debt settlement programs. If you are participating in one of these plans, it isn’t too late – call our office today at 888-255-8995 for help in getting real debt relief.
Do I have to make a court appearance?
Usually no. The only appearance most bankruptcy filers make is at an informal 341 Creditor’s Meeting where there is no judge. The bankruptcy trustee will ask you a few questions for the record about your bankruptcy at this meeting. These questions usually take less than 5 minutes to complete.
If I file bankruptcy, won’t my credit be messed up for 10 years?
If you file, the bankruptcy is allowed to remain on your credit report for up to 10 years – but from the time of your bankruptcy discharge, you will have a fresh start to rebuild your credit with no debt burden. The alternative is to go on with debts hovering over you that will take many years to pay off, and will remain on your credit report for 7 years after that – usually an even worse situation. This is especially true with judgments which may be collected for 10 years after that are placed against you.
If I file for bankruptcy, what happens to my credit score?
There is no doubt – your credit score will go down as a result of a bankruptcy filing, but credit score is only one component lenders use in determining your credit worthiness. Lenders also look at your income and your debt burden. If you have missed payments, have collection accounts, have judgments, or repossessions, your credit score is already very low. Bankruptcy will lower the score even more, but bankruptcy can also eliminate your debt burden completely. In a lender’s eyes, this can make you more credit worthy since your income is free from the burden of your old debt payments. Moreover, once you make a fresh start, you will be able to rebuild your credit over time.
What’s the first step in rebuilding credit?
To avoid getting into financial problems in the future, you must understand your flow of income and expenses. Some people call this making a budget. Others find the term budget too restrictive and use the term spending plan. Whatever you call it, spend at least two months writing down every expenditure. At each month’s end, compare your total expenses with your income. If you’re overspending, you have to cut back or find more income. As best you can, plan how you’ll spend your money each month.
If you have trouble putting together you own budget, consider getting help from a nonprofit group, such as Consumer Credit Counseling Service (agencies affiliated with the National Foundation for Credit Counseling) at www.nfcc.org, or Myvesta.org at www.myvesta.org, both of which provide budgeting help for free or at a nominal fee. There are also websites available, such as Budget Simple at www.BudgeSimple.com, that offer interactive online budgeting programs and tools for free.
There are also other websites available that have tips and pointers for establishing and maintaining good credit, such as www.CreditFairy.org.
Will I ever be able to get credit again?
Certainly. Many people are able to obtain credit within the year of their bankruptcy. If you handle the credit wisely, you can begin to improve your credit score over time.
How many credit cards should I carry?
Once you succeed in getting a credit card, you might be hungry to apply for many more cards. Not so fast. Having too much credit may have contributed to your debt problems in the first place. Ideally, you should carry one or two bank credit cards, maybe one department store card, and one gasoline card. Creditors want to see that you can handle more than one credit account at a time. But use all of the cards only if you can pay the charges in full each month. You don’t need to build up interest charges on these cards.
Creditors may frown on applicants who have a lot of open credit. So keeping many cards may mean that you’ll be turned down for other credit – – – perhaps credit you really need. And if your credit applications are turned down, your file will contain inquiries from the companies that rejected you. Your credit file will look like you were desperately trying to get credit, somthing creditors never like to see.
How can I get a copy of my credit report?
The Federal Fair Credit Reporting Act (FCRA), amended by the Fair and Accurate Credit Transaction Act (FACTA), allows consumers to get a free copy of their credit report each year from each of the three major credit reporting companies. Free annual credit reports are now available in every state.
To order your free report, go to www.annualcreditreport.com, and either order your report directly or download a form to mail in your request. You can also call 877-322-8228. Note that the World Privacy Form recommends that consumers may be better served by ordering their credit reports by phone or mail rather than online (see www.worldprivacyforum.org/calldontclick.html for more details).
Also, you are entitled to one free copy of your credit report each year under the following circumstances:
- You have been denied credit because of information in your credit report and you request a copy within 60 days of being denied credit.
- You are unemployed and looking for work.
- You receive public assistance.
- You believe your file contains errors due to fraud or you are (or you think you are) a victim of identity theft.
- You have been denied employment (or another adverse employment decision has been made) based in whole or in part on information contained in the report.
- Your report has been revised based upon an investigation you requested.
The three major credit reporting companies are Equifax, TransUnion, and Experian. It’s best to order your report from all three. If you do not qualify for a free report (for example: you have already ordered your free report for the year), there will be a small charge. The amount will vary from state to state because it is mandated by state law ($9.50 in many states currently). To order directly from one of these credit bureaus call, e-mail or visit the company’s website.
P.O. Box 740241
Atlanta, GA 30374
P.O. Box 1000
Chester, PA 19022
P.O. Box 2104
Allen, TX 75013
When you request your credit report, you’ll need to provide the following information:
- Your full name (including generations such as Jr., Sr., III)
- Your date of birth
- Your Social Security Number
- Your spouse’s name (if applicable)
- Your telephone number
- Your current address and addresses for the previous five years