If you are thinking about filing for bankruptcy, it is natural for you to have a number of questions about your finances, your belongings, and your future. To try and address some of these questions we have provided the following list of FAQs, along with their answers. However, if you would like to discuss your situation in greater detail with a Killeen bankruptcy attorney, or if your question isn’t listed here, do not hesitate to call Erin B. Shank, PC, today at (254) 296-1161.
Q: What is Bankruptcy?
A: Bankruptcy is a court proceeding that helps people and businesses that are unable to meet their financial obligations and are at risk of losing their assets. The decision to file bankruptcy is not one which should be taken lightly. You need to consult with an experienced bankruptcy attorney who knows the law and the local bankruptcy practice. Call the law offices of Erin B. Shank, P.C. for a free consultation to determine if filing a bankruptcy case can help you deal with your financial problems.
Q: If I file bankruptcy, will I lose everything?
A: NO. The law allows you to protect your exempt assets, so that you do not lose them. Property that you choose to “exempt” is legally beyond the reach of creditors and the bankruptcy trustee. Generally, you are allowed to exempt your home, your household furnishings, the vehicles that you and members of your family drive, the tools of your trade, and your retirement accounts. There are many other exemptions you can use. You still have to make payments on “secured debt,” such as a home or car loan, if you wish to keep the property that is collateral for the loan. If you are behind on your secured debt, a Chapter 13 bankruptcy allows you to propose a 3-5 year payment plan to repay these creditors.
Q: Can bankruptcy stop foreclosure?
A: YES. A Chapter 13 bankruptcy filed before a foreclosure sale can stop the sale and give you three, four, or five years to make up missed monthly payments This will save your home from foreclosure, as long as you make your regular monthly payments after your bankruptcy case is filed. In addition, we may be able to help you modify your home loan if you qualify.
Q: What is a Chapter 7?
A: Chapter 7 is a straight liquidation bankruptcy. All unsecured debts are discharged, with certain exceptions. Chapter 7, like Chapter 13, also stops repossessions, foreclosures, and garnishments. Unlike Chapter 13, Chapter 7 does not require proposal of a repayment plan. You are able to keep you home and your car as long as you keep paying the creditors who financed those purchases for you.
Q: What is a Chapter 13?
A: Chapter 13 is also known as a wage earners’ bankruptcy. In order to file a Chapter 13, a person must have a regular source of income. In Chapter 13, a payment plan is filed with the Bankruptcy Court. This plan sets up a schedule of payments that will be made to a bankruptcy trustee, to be distributed to some or all creditors.
The biggest advantage of Chapter 13 is that it automatically stops foreclosure and allows past-due house payments to be put into the plan, to be repaid over 3-5 years.
A second advantage of Chapter 13 is that tax debt can be repaid over time and discharged, frequently without paying interest and penalties. This can be a great advantage to individuals and businesses with IRS problems.
Q: I will never be able to buy anything again, right?
A: WRONG. Our clients are able to get new credit cards, buy cars, and even buy houses after bankruptcy and sometimes during bankruptcy. Bankruptcy remains on your credit report for 10 years. However, most of our clients report that bankruptcy improved their credit score by improving their debt-to-income ratio. We cannot guarantee your credit score will be improved. It is up to you and the choices you make after bankruptcy that will determine your future credit. But there is life after bankruptcy.
Q: Creditors are calling my employer or workplace. Can bankruptcy help?
A: YES. The Bankruptcy Code requires all creditors to stop all collection activity, which includes calling you or your employer, as soon as you file bankruptcy. Even before you file, once you have retained an attorney, the Fair Debt Collection Practices Act requires debt collectors to conduct their business with you through your attorney, rather than contacting you or your employer. We recommend that you not tell your secured creditors (those who can take collateral if you don’t pay them) that you are going to file bankruptcy, unless you plan to surrender that collateral to that lender.
Q: Creditors keep taking money out of my bank account. Can bankruptcy help?
A: YES. If you file bankruptcy, all creditors must stop taking money from your bank accounts. You need to provide information about your creditors and debts to our office so that we can notify the creditors of your bankruptcy filing and demand that their collection actions stop.
Even before we file a bankruptcy case for you, however, we strongly recommend that you only bank at a financial institution that you do not owe money to and have not given creditors access to. No need to close existing accounts – just deposit your money in a bank or a credit union that you do not owe money and where you have not given creditors access to your accounts.
Q: I have a judgment against me in civil court. Can bankruptcy help?
A: YES. With some exceptions, debts from civil judgments can be discharged in Chapter 7 and Chapter 13 bankruptcy. For instance, if you relocated and your former landlord sued you for breaking the lease, that debt would be dischargeable in either a Chapter 7 or a Chapter 13 bankruptcy case.
Q: Will my employer find out that I filed bankruptcy?
A: Maybe. If you file a Chapter 7, we will not inform your employer, and neither will the Bankruptcy Court. But if you file a Chapter 13, your paycheck will be garnished to make plan payments to your creditors. If both you and your spouse work, then the two of you will decide whether your paycheck or your spouse’s paycheck will be garnished for these payments. Garnishing a paycheck will inform that employer of your bankruptcy.
Q: Will everyone find out I filed bankruptcy?
A: People and businesses that file bankruptcy are not regularly published in the newspaper. Filing bankruptcy is a matter of public record. However, finding out someone filed bankruptcy is difficult to do and typically requires a fee. Our clients rarely report problems due to people finding out they filed bankruptcy.
Q: I am self-employed. Will I be able to keep my business if I file bankruptcy?
A: Most likely if you want to. We file bankruptcy for many clients who are self-employed with dbas, LLCs, and Corporations. We will spend a considerable amount of time with you discussing how to file bankruptcy and continue working if that is your desire. If you want to close your business, we can help you do that as well. If you are self-employed, we may feel you require an additional consultation with Ms. Shank for a fee before you discuss your options with you.
Q: Do I have to list all my creditors? I want to pay some of them back.
A: YES you have to list all creditors. However, if you file Chapter 7, you can still pay some of your creditors back after the bankruptcy if you choose. In a Chapter 13, your creditors will receive some money.
Q: Does Erin have experience working with military families?
A: YES. Erin Shank’s father, father-in-law, and husband all served in the U.S. military. Erin is therefore an aggressive advocate on behalf of military families who need to file bankruptcy. Erin has successfully argued that many of the onerous provisions of the 2005 amendments to the Bankruptcy Code should not apply to those who serve or have served our country in the U.S. military. Congress has made exceptions to the Bankruptcy Code applicable to active duty military, disabled veterans, reservists, and members of the National Guard. If you have served our country, please be sure to tell us of your service so that we can determine if these special exceptions in the Bankruptcy Code are applicable in your bankruptcy case.
Q: Because of my pay grade, I can only file under Chapter 13, right?
A: NO. Don’t assume that you earn too much to file under Chapter 7. Some people who have heard or read a little about the “means test” which is contained in the Bankruptcy Code mistakenly think this. Ms. Shank is an experienced bankruptcy attorney and she will aggressively attempt to place clients in Chapter 7, as opposed to Chapter 13, if Chapter 7 can appropriately address their financial problems.
Q: Will filing bankruptcy affect my security clearance?
A: Bankruptcy Code Section 525 prevents private employers and the U.S. Government from discriminating against you because you filed bankruptcy. Therefore, by law, filing bankruptcy cannot be a basis to revoke a security clearance. However, if you have serious debt problems that you are not taking care of, such as judgments, levies and lawsuits, your employer can use these issues against you in hiring or promotion considerations. Filing bankruptcy is a responsible and legal way to address your financial problems rather than allowing them to continue unaddressed indefinitely.
Q: My spouse is currently deployed or about to deploy. Can I still file bankruptcy
A: YES. You will need a Power of Attorney for your spouse if you want to file the case for both yourself and your spouse, and provide a copy of the Power of Attorney to us as we prepare your bankruptcy papers. We can prepare the Power of Attorney if you do not have one.
Q: Military Star has garnished my paycheck. Can bankruptcy help?
A: YES. This is unsecured debt, and can be discharged in Chapter 7 bankruptcy just like any other credit card. It can be paid reduced amounts over 3 to 5 years under a Chapter 13 bankruptcy case.
Q:I am having trouble with a payday loan. Can bankruptcy help?
A: YES. Unsecured payday loans are dischargeable in a Chapter 7 bankruptcy case, or can be paid reduced amounts over three to five years in a Chapter 13 bankruptcy case. Payday lenders may tell you it is a crime not to pay them. This is not true. Also, once you have filed bankruptcy, the Bankruptcy Code requires all creditors, including payday lenders, to stop all collection activity immediately. If you gave these creditors post-dated checks, the Bankruptcy Code prohibits them from attempting to collect by cashing those checks after you have filed a Bankruptcy Case. However, if you have given post dated checks to any creditor, we recommend that you open a new bank account at a different bank or credit union and do all of your banking out of that new account.
Q: I am behind on my house payments. Is Chapter 13 my only option?
A: Absolutely not. Chapter 13 is a three to five year wage garnishment. We prefer to file a Chapter 7 case for our clients whose homes are posted for foreclosure and then propose to their mortgage companies a modification of the loan to make it more affordable. A Chapter 7 bankruptcy only lasts three months and there is no wage garnishment. This is a much better way to save a home than a five-year wage garnishment through a Chapter 13 bankruptcy.
Q: How much does a bankruptcy cost?
A: The Bankruptcy Court has set the fees for Chapter 13 filings. It is $3,200.00 plus filing fees and other costs, which make the total cost about $3,600.00. You only pay a portion of that to the attorney before the case is filed and then the balance is paid through a garnishment of your wages for three to five years. A Chapter 7 for a non-business filing is much cheaper. We provide a convenient payment plan with no wage garnishment. While you are paying our fees, we respond to all creditor calls and letters. Our clients much prefer to pay our lower fees than the higher fees with wage garnishments that are mandatory in Chapter 13 fillings.
Q: If I file for bankruptcy, will I ever be able to buy a home?
A: Our Chapter 7 clients are able to purchase homes two years after their Chapter 7 discharge. This is true for VA loans as well. If you file a Chapter 13, your discharge won’t occur until after your three to five year wage garnishment is concluded and then you have to wait two years before being able to finance a home. This is why we encourage our clients to file Chapter 7 cases.
Q: If I file bankruptcy, can I keep my stuff?
A: Yes, due to the strong exemptions available under both Texas and federal law, our clients typically retain all of their assets as exempt assets. Your home, cars, furniture, retirement accounts, life insurance, and other assets can be retained as exempt.
Q: If I file bankruptcy, will I ever be able to get credit again?
A: Absolutely. As long as you have income from a job, you can qualify for a replacement vehicle the day your Chapter 7 discharge is received and that is a mere three months after your case is filed. Interest rates for post bankruptcy Chapter 7 clients with employment are typically six to eight percent. Our clients usually start out with a “secured” credit card after discharge and then fold into a more typical credit card after their credit is re-established, which can be in approximately one year.
Q: What is the difference between Chapter 7 and Chapter 13 bankruptcy?
A: Chapter 13 is a three- to five-year wage garnishment. Chapter 7 is a three-month proceeding with no wage garnishment. We file virtually all of our clients in Chapter 7 cases because it is obviously the better choice.
Q: Will I lose my military clearance if I file Chapter 7?
A: No. We have seen many of our clients get their military clearance restored after we file their Chapter 7 cases. Chapter 13 is a three- to five-year wage garnishment and we have found that security clearances can be threatened if you opt to be in bankruptcy for so long. This is why we place virtually all of our active duty soldiers in Chapter 7 cases.
Q: What do I need to bring to my initial conference with a bankruptcy lawyer?
A: Your spouse. Even if he/she may not join you in the bankruptcy filing, we believe it is important that both spouses know what the bankruptcy procedure is and are advised of the consequences of the debt problem their family is facing. You should also bring copies of pleadings from any lawsuits you are a party to and any foreclosure or repossession letters you have received. Our initial consultations are really fact-finding session for both you and us. If you decide to hire our firm to file a bankruptcy case for you, we will obtain more detailed information and documents from you as we prepare for that filing.