Frequently Asked Questions And Answers About Bankruptcy
Bankruptcy laws provide extraordinary protection and relief. Everyone is still eligible to file!
1. I heard the Bankruptcy Laws changed in 2005, so almost nobody is eligible to file a Chapter 7, right?
WRONG. A common misconception is that after the law changed in 2005, very few people are eligible to file Chapter 7. That is simply not true. Pelley Law Office, L.L.P., recently did a study comparing whether the percentage of Chapter 7s versus Chapter 13s we have filed since 2005 has significantly decreased. It has not. To the contrary, the percentage of 7s versus 13s we have filed has remained about the same!
2. If I do file a Chapter 13, then I pay back most (if not all) of my credit card debt, right?
WRONG. Another misconception is that if you do file a Chapter 13 bankruptcy, you always pay back your credit card or other similar unsecured non-priority debt. To the contrary, that is rarely the case.
3. What is the minimum amount of credit card debt I need to file a bankruptcy?
There is no minimum. However, if you have $30,000.00 worth of credit card debt and your credit cards are averaging 25 percent interest rates, then that is costing you $7,500.00 per year in interest alone. If you owe $40,000.00 of credit card debt at 25 percent, then you are being charged approximately $833.33 per month in interest! That means if you pay $850.00 per month to your credit cards, your total amount of credit card indebtedness is reduced approximately only $16.67 (and much of that $16.67 is probably being eaten up by over the limit fees and late payment penalties).
4. Will I lose my house?
Bankruptcy rules are designed to help you retain your property if that is your desire. In order to do so, there are certain requirements. Typically, you have to resume making the payments on your house beginning with the first payment that comes due after you file the bankruptcy. If you are behind on your house, Chapter 13 can help you get caught up. If you are current and stay current on your house, then either Chapter 7 or Chapter 13 will still allow you to retain your exempt homestead.
5. Will I lose my cars?
Like your home, the bankruptcy process is designed to help you keep the vehicles necessary for your family. Again, either Chapter 7 or Chapter 13 will provide the necessary protection so that you can retain the cars required to maintain your family needs. These are amongst the issues that we will specifically discuss in order to help you make the best choice.
6. What is the effect on my credit?
Proper utilization of the bankruptcy code will help you re-establish your credit very quickly. We will council you on how to rehabilitate your credit at the free initial consultation.
7. Will I ever be able to buy a house or a car again if I file a bankruptcy?
While it varies for each individual, our experience has been that financing is typically made available for the purchase of a new home or a new car soon after the bankruptcy is complete.
In fact, new vehicles are frequently acquired during the course of a normal bankruptcy.
8. Does Pelley Law Office, L.L.P., accept payment plans?
Yes. We understand you are having financial difficulties. That is the reason we provide a free initial consultation. We will discuss payment options at the free initial consultation. In almost all cases, once you quit paying the creditors you want to discharge, you will have more than enough money to file your bankruptcy. It is and extremely inexpensive procedure.
9. What if I want to pay some creditors and discharge others?
The bankruptcy code requires full disclosure. As long as you make full disclosure, the bankruptcy code allows you a great deal of latitude to pick and choose which creditors you pay. We will discuss each creditor individually. Typically, in a Chapter 7 you are not prohibited from paying anyone that you wish to pay. They are prohibited from collecting from you. In a Chapter 13, we will put together a plan reflecting those creditors that you wish to pay and ask the Court to approve that plan.
10. When will the telephone calls stop?
Immediately after the filing of the bankruptcy, the bankruptcy clerk notifies all of the creditors that you have listed. Upon the receipt of that notice, those creditors are bound by the Bankruptcy Code to cease all communication with you. They cannot sue you, call you, foreclose on your house, repossess any items from you, garnish any wages or take any other legal action.
In addition, if there are specific creditors that are harassing you in an extraordinary way, we will contact them for you immediately upon the filing of the bankruptcy, notify them of your case number and advise them that they are to cease and desist all activities.
11. What happens when I file the bankruptcy?
Immediately upon filing the bankruptcy, an automatic stay goes into effect. That means that no creditor can take any further action against you. That includes a foreclosure on your home, garnishment by the IRS, repossession of your vehicle, or the prosecution of a lawsuit or any other claim against you. No further telephone calls should be made to you, to your work, to your family, or to your friends.
12. Will I have to go to Court?
Court appearances vary for each individual. Typically, in a Chapter 7 bankruptcy you will have one informal hearing in front of a Trustee. The Trustee is not a judge. While the hearing before the Trustee is informal, it is “on the record.” As such, an attorney will be there to represent you.
An individual in a Chapter 13 bankruptcy will also have to go to a First Meeting of Creditors. It is also informal and will be in front of a Standing Chapter 13 Trustee.
An individual who files under either Chapter 7 or Chapter 13 may be required to have additional Court hearings. Those are not always possible to predict in advance. But, if you need to go, we will typically give you at least twenty days notice and you may rest assured that we will be there to represent you.
13. Will I lose all of my assets?
Both the Bankruptcy Code and the Texas Property Code have exemption statutes that are designed to help people protect their home, their car, their furniture, furnishing, clothing and personal effects. In addition, most clients qualify for a “wild card” exemption under the federal list of exemptions, which allows them to retain assets that would otherwise be non-exempt under the Texas Property Code. Normally, most debtors are not required to lose any property that they do not otherwise wish to voluntarily abandon. We will discuss both exemption statutes with you and help you choose the statute that is most beneficial to you.
14. What am I required to do?
You are under no commitment by meeting with us. We ask that you contact our office, set up an appointment and bring with you a complete list of every one you owe and approximately how much you owe them. We will also need to discuss your assets so that we can best protect them.
At the initial consultation, we will discuss our fee with you and a payment plan for you. If you decide to employ us at that point, then we will request that you complete a set of forms. We will go over the forms with you in detail. You will then be required to attend a “Meeting of Creditors”. This typically is the only appearance that you will need to make. That hearing normally lasts no more than three to ten minutes. It is unusual for any creditors to appear. Normally, only the Trustee, you, and an attorney will be present.
15. How do I pay if I am broke?
Since we have practiced in this area for over thirty five years, we understand the difficulties in paying attorney’s fees. We are happy to work with you. The attorneys fees in bankruptcy are extremely low in comparison to other types of legal fees. We will discuss payment options with you at the free initial consultation. You will not be required to come up with a large sum of money all at once unless that is your desire and in your best interest. In addition, since you will no longer have your normal obligations, most people are able to pay us out over a short period of time.
16. My house is up for foreclosure. How long can I wait to decide?
Do not wait. Since there is absolutely no charge for your first consultation with us, it is pointless to wait. Come see us immediately so that we can explain your alternatives and you can choose the option that is best for you. If you wait too long, it may be too late to stop the foreclosure or to stop the repossession.
17. If they have already repossessed my vehicle, is it too late to save it?
No. One of the great advantages of a Chapter 13 is that if you act immediately after your vehicle is repossessed, the Bankruptcy Code normally will require the creditor to return the vehicle to you. In a Chapter 13, you can then make arrangements to either pay the arrearage on the vehicle, repay the debt on the vehicle, or the value of the vehicle, whichever is most advantageous to you. However, if you wait and the vehicle is sold by the creditor after they have repossessed the vehicle, then it will then be too late to regain possession of your vehicle.
We are often able to allow you to pay the value of the vehicle rather than the full amount of the debt. This normally results in a substantial reduction in your monthly payment on your vehicle.
18. What are the differences between Chapter 7 and Chapter 13?
A Chapter 7 bankruptcy is typically the chapter that we recommend if you are qualified. We do that because Chapter 7 is the quickest, the cheapest and does the most for you. In a Chapter 7 bankruptcy, we normally file your bankruptcy and have your trustee meeting within 30 to 45 days. Typically, you will receive a discharge within 60 days after that meeting and you will be out of bankruptcy. In a Chapter 7, you must remain current on your payments on your vehicles and your house if you wish to retain them.
A Chapter 13 bankruptcy is different in that it is designed for people who are: (1) behind on their house and their property is about to be foreclosed upon; or (2) behind on their vehicles and their cars are about to be repossessed. It is also designed for people who are behind to the IRS, or those who simply make too much money each month to remain in Chapter 7. Chapter 13 has many advantages. For instance, we are often able to substantially reduce your payments on your vehicles. However, either chapter will typically allow you to discharge unsecured debts.
Our job during our initial and any subsequent consultations with you is to discuss the advantages and disadvantages of each chapter, to make recommendations to you and then to try to accomplish a successful plan of action so that we can achieve your desired goals. The primary goal is to help you obtain a fresh financial start.
19. Is bankruptcy better than going through a debt repayment program?
Yes, for several reasons. First, in a Chapter 13 plan, the Court will force your unsecured creditors to accept the plan even if you are paying them a very small percentage or making absolutely no payments toward their actual claim. A private service has no such power. In addition, once you file the bankruptcy, none of your creditors may file suit or take any further action against you. A private service has no power to stop any one individual creditor from taking such action. Further, in a Chapter 13, all interest stops on unsecured debt. That means the debt will no longer continue to grow. Best of all, at the conclusion of the typical Chapter 13 plan, not only has the interest been removed, the underlying debt will have been discharged as well.
20. If I have filed a bankruptcy before, can I file again?
21. Can you reduce my monthly payments on my car?
Normally, yes, in a Chapter 13. In a Chapter 7, usually you continue to make the regular payments on your car.
22. The IRS is charging me an arm and a leg in interest and penalties, will a bankruptcy help?
Absolutely. Normally all interest stops immediately upon the filing of a bankruptcy. We can usually remove the penalty that has previously been assessed in a Chapter 13.
23. I am thinking about paying one of my credit cards $500.00 to $1,000.00 before I come in for my free initial consultation, should I?
No. That would probably constitute a preference. The Trustee would then require the creditor to turn over the money to the Trustee. You would still owe the debt despite having made the payment.
24. I have been served with a lawsuit, what should I do?
Call the office for an appointment immediately. The bankruptcy will normally stop all litigation.
25. I am getting conflicting information on the Internet about bankruptcy, what should I do?
Ask an attorney that practices bankruptcy law every day at a free initial consultation, and do not believe the myths on the Internet.
26. Will it ruin my parents’/wife’s/husband’s/brother’s/sister’s/son’s/daughter’s/friend’s/uncle’s credit if I file bankruptcy?
27. If I file the bankruptcy, will I keep paying my creditors?
Typically, only those you want to keep. Frankly, once you quit paying the creditors you want to discharge, in most cases you will have more than enough money to file your bankruptcy.
28. Is my name going to be in the newspaper if I file a bankruptcy?
None of the local newspapers have reported filings for the last several years.
29. Are they going to take my parents/children’s property away from them?
30. When will I get another credit card?
As a general rule, you should start receiving credit card solicitations within two months after you file the bankruptcy.
31. Will somebody come to my house and look at my assets?
While this is possible, it almost never occurs.
32. Should I cash in my IRA/401(k) account in an attempt to avoid having to avoid filing bankruptcy?
No. If you do, it will most probably cause a very large tax liability on your part and it may detrimentally affect a subsequent bankruptcy.
The point of bankruptcy is to give you a fresh start financially. We can save all of your retirement money that qualifies under the IRS’s requirements for you. We will discuss that in advance. Please call us before wasting your life long savings.