Common Questions About Bankruptcy

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Bankruptcy is the last option for some people and many have questions about what will happen to them.  Here are some of the most common questions we hear:

Will I lose my home/car?

That is a question that has to be answered individually.  Florida has some of the most lenient exemptions laws when it comes to your home.  In a Chapter 13 Bankruptcy you can even wipe out a second mortgage or home equity loan.  When it comes to your vehicle, you can also exempt $1, 000 of equity in your car.  You may also choose not to include your car in your bankruptcy and continue making the payments on your own.  There are exceptions and the answer also depends on whether you file a Chapter 7 or a Chapter 13. 

How long does it take to file bankruptcy and wipe out my debts?

The length of time it takes to file largely depends on you.  If you come to us on a Monday, in some cases we can file by Friday.  You may want to talk to us and think it over before filing.  Some clients wait a long period of time before actually filing a bankruptcy.  This can hurt you in the long run because interest and fees are accruing on your debts.  As to the time it takes to wipe out your debts, if you file a Chapter 7 bankruptcy, it usually takes three months for the debts to disappear.  Chapter 13 is a repayment plan that takes three to five years on average. 

I am embarrassed by my financial situation.  Will my neighbors/friends/coworkers find out I have filed bankruptcy?

Bankruptcy records are public and anyone can go online or down to the federal courthouse and see if you have filed for bankruptcy.  Unless you are a celebrity or applying for a high profile job that requires a credit check, it is unlikely if anyone will know if you filed bankruptcy unless you tell them.  However, some publications do run bankruptcy filings and someone may recognize your name.

Can my creditors still call me after I have filed bankruptcy?

NO! Once you have filed for bankruptcy protection, they must stop all collection proceedings until the case is settled.

Every situation is different and the only way to get an answer that will ease your mind is to talk to us about your situation.  We have helped hundreds of clients protect their assets and financial future. 

401(k) and Retirement: Leave It Alone If You’re Filing For Bankruptcy

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In an effort to avoid bankruptcy,  many people who are falling on times of financial distress will start tapping into their retirement savings to stay afloat and attempt to ward off creditors.  However, this is one of the biggest mistakes you can make for several reasons: first, that money is protected from creditors, even if you file bankruptcy; second, it might be wasted payment since that particular debt could potentially be discharged in a Chapter 7 bankruptcy (or reduced in a Chapter 13 bankruptcy). 

Any money that you have saved for retirement or have placed in a 401(k) program is exempt in a bankruptcy.  This means that these are funds your creditors cannot touch, even if you qualify for a Chapter 7 and your assets are liquidated to pay off your creditors.  Federal bankruptcy laws ensure that this money is protected so that you can (hopefully) avoid bankruptcy in the future and have a solid foundation for rebuilding your life and financial goals.  So if this money is protected from creditors, why would you willingly give it to them? 

Another thing to keep in mind is that if you are tapping into savings that you have put aside for your retirement, something is not right with your budgeting and month-to-month living expenses.  It might work to mend your situation temporarily or get a creditor off of your back for the short-term, but how long can this last?  Even if you are able to use these retirement funds as a temporary fix to your financial situation, what about the long-term outlook?  If you find that you are not able to make ends meet, your first efforts should be in clearing away some debt through bankruptcy (if necessary) and living within a more realistic budget—not taking away from your savings for the future.  These are the best steps to getting back on track financially, and you can take them with your retirement savings intact. 

Top Five Things To Avoid Before Filing Bankruptcy

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If you have plans to file a Chapter 7 or Chapter 13 bankruptcy in the near future, or have already begun the process, you have to begin planning carefully to ensure that the bankruptcy is granted and you’re your financial future will begin on more solid footing once the discharge is complete.  Therefore, there are certain mistakes you should avoid in order to ensure you don’t end up in hot water with the bankruptcy trustee or even have your case dismissed. 

#5 – Stop all use of credit cards

When you know you plan to file bankruptcy and continue to use credit cards (with the intention to avoid paying), that debt could become non-dischargeable.  This is especially true if you purchase items that aren't necessities or luxury items, such as vacations. 

#4—Don’t transfer property

A bankruptcy trustee might ask for details concerning any property transfers made within the past 6 years, particularly focusing on any made within 1 year before filing bankruptcy.  If the trustee finds that the property transfer violates rules relating to the bankruptcy code, that transfer might be voided and the recipient of the property might be forced to return the property to the trustee. 

#3—Avoid repaying money you've borrowed from friends and family

Due to bankruptcy code, any transaction in which you've repaid money that was loaned to you by friends or family could be recovered from the people to which you've paid the money. 

#2—Avoid paying more than $600 to one creditor

In the same sense that money paid to friends and family can be recovered, payments exceeding $600 to any one creditor can also be recovered by the trustee. 

#1—Avoid cashing out on your 401k or retirement plan

Your retirement plan or 401k is protected by the bankruptcy code and if you’ve withdrawn any money from such plans or cashed them in, your trustee will likely void those transactions as preferences.  

Should I cash out my 401(k) to pay creditors and/or avoid bankruptcy?

What will happen to my car loan if I file Chapter 7 bankruptcy?

I’m Retired and in Debt: Does Bankruptcy Make Sense?

A comfortable and peaceful retirement is part of the “American Dream,” but an increasing number of seniors in the U.S. are finding themselves burdened with too much debt, whether from medical bills or simply several years of unwise financial decisions.  This is leading to the question: does bankruptcy in retirement make sense? 

There are some important issues to look at if you are at a retirement age and considering bankruptcy—issues that are unique to you due to your retirement plans and age.  First of all, it is important to know that your Social Security wages cannot be garnished, whether you file for bankruptcy or not.  However, many creditors will garnish a bank account, which means that if you keep your Social Security wages in your bank account, along with any other money earned, a creditor isn’t likely to know how much of that account’s balance is from Social Security wages.  Therefore, keeping your Social Security wages in a separate account is crucial to maintaining this protection. 

However, if you have a large pension, you will be unlikely to qualify for Chapter 7 bankruptcy.  This means that you will be stuck with filing Chapter 13, which requires you to pay back a certain amount each month.  Since many seniors are on a very set income and often lack the extra money each month to pay such payments, Chapter 13 might not be the best option if it will make it difficult for them to take care of their basic, day-to-day living expenses AND make these payments on a set income. 

If you have an IRA with a significant amount of money, it is important to check with a bankruptcy attorney to see how that account would be affected after filing for bankruptcy.  Since bankruptcy laws and exemptions vary within each state, you might be advised that you are better off not filing or risk losing a large portion of your IRA.  In Florida, most cases allow you to keep 100% of your IRA or 401k regardless of the amount.

What Happens to My Car Loans in a Bankruptcy?

Anyone who is considering bankruptcy will likely be concerned about its effect it will have on car loans, since such loans are considered secured loans, with the vehicle as collateral.  Most states have bankruptcy exemptions that allow you to keep your vehicle, but the amounts vary from state to state.  So how do you know what will happen to your car before you make the choice to file?

Regardless of whether you file Chapter 7 bankruptcy or Chapter 13 bankruptcy, there will be an “automatic stay” that applies and prevents debt collection attempts, lawsuits, foreclosures, wage garnishments and repossessions until the court determines the outcome of your bankruptcy filing.  How the courts will handle your car loan depends on the type of bankruptcy you file. 

If you file Chapter 7 bankruptcy, your car loan will be considered secured debt and you essentially have two options.  You can reaffirm it, which means you will continue making payments as normal.  Same interest rate, same payments, same time. Or, you can surrender it, which means you give the car back and have the remainder of the amount owed on the car (after the car is sold through auction) discharged through the bankruptcy filing.  

If you file Chapter 13 bankruptcy and your car is a newer car (meaning you bought it within 910 days of the date in which you filed bankruptcy), you are required to pay the amount of the loan, although it might be possible to get your interest rate reduced.  If your car is an older car (meaning you purchased it more than 910 days before filing for bankruptcy), you will only be required to pay the car’s current market value.  This is a useful tool for people who had bad credit and consequently have been paying for years at an obscene interest rate.

How Much Do I Have to Owe in Order to Qualify for Bankruptcy

At least twice a week I get a phone call that asks the question “How much do I have to owe to qualify for bankruptcy”.  It’s a fair question, but not the right one.  The real question is about your ability to pay.  If you are unemployed, even a minimal payment can lead to ruin.  Sometimes, even if you can make the minimum credit card payment, you may be better off filing bankruptcy.

One of our clients left a big impression.  He had an average, middle management man with a house, a wife and an 8-year old son, when in the space of a little more than a year, he lost his job and his wife divorced him.  He found a new job that paid about 31k a year, but was now forced to rent an apartment and he was unable to do anything except about $300 in minimal payments to the $8,000 he owed in credit cards.  He decided to do a chapter 7 bankruptcy with us, because those $300 were the difference between a tiny studio apartment and just staring at TV with his son and a one bedroom apartment and being able to occasionally take his son out to a Marlins game or the Miami Zoo. 

Each person or family is different in their financial circumstances.  For some, the loss of a job or loss of a 2-person household income has left them stranded in dire financial straits, forcing them to overextend their credit just to keep their head about water. 

Bankruptcy, while certainly not an easy process, if often the best option for individuals and families who face job loss, divorce or other significant, game-changing circumstances.  It provides relief from creditors and can help get your family back on its feet a lot faster than other options.  To be sure which choice is right for you, consult a qualified bankruptcyattorney. 

Common Bankruptcy Myths You Should Know Before Filing

There is a lot of misinformation about bankruptcy floating around, and debunking these myths can help clear the air and make your decision one that is based on the facts rather than fallacies. 

Myth #1: The process of filing bankruptcy is as simple as filling out a few forms.

There is nothing about the bankruptcy process that is simple.  It is a complicated, expensive and often long legal process.  While bankruptcy is certainly a process that can help consumers who have too much debt, it is also a very serious legal endeavor that has potential for future litigation.  All bankruptcy forms are filed in Federal court and are looked over carefully by a trustee whose job is to liquidate your assets and pay your creditors, if possible.  Even if you claim exemptions, your bankruptcy trustee has the power to object to the assets you use for these exemptions. 

Myth #2: I will lose all of my property if I file for bankruptcy.

If you file a chapter 7 bankruptcy, your non-exempt property will be subject to being sold and liquidated to pay your creditors.   However, your exempted property is yours to keep and cannot be liquidated in the bankruptcy process.  When you file bankruptcy, your bankruptcy trustee will oversee your estate and make a decision regarding the property that is non-exempt.  In many cases, the cost of liquidating non-exempt assets is more than their worth, so it might be the case that you get to keep everything you currently own.  Many people who have filed for bankruptcy haven’t lost a single piece of property or asset in doing so.   The amount and type of exemptions vary depending on whether you own your own home, are married and other factors.  Consult a qualified bankruptcy attorney for your specific exemptions, but ninety percent of our clients get their fresh start while keeping their home and maintaining their vehicle.

Myth #3: I can never qualify for credit again.

It is often the case that as soon as a bankruptcy is filed, debtors are swamped with credit offers.  This is surprising to some but reveals a truth about the myth that once you file bankruptcy, you can’t qualify for credit again—it’s simply a false statement.  While a bankruptcy can stay on your credit for 10 years if you file a Chapter 7, the ability to borrow money is largely based on your debt-to-income ratio.  If a bankruptcy reduces or eliminates your debt, then it’s even possible that your FICO score can be higher after a bankruptcy than it was before it.  

I Got My Discharge In Chapter 13 And Now I Have New Debts…What Do I Do?

Chapter 13 bankruptcy is a wonderful way for people who have dealt with a large financial blow to get back on track.  Following a divorce, loss of a job, or loss of a business enterprise, Chapter 13 bankruptcy has helped millions of people get their lives and finances back together after enormous losses.  However, let’s say you received a Chapter 13 bankruptcy and spent the past 3-5 years paying off your debts—only to be hit at the end of it with another bad blow, sending you straight back in to financial ruin.  What now? 

Don’t worry, there is still hope.  After the 2005 amendments in the U.S. Bankruptcy code, the timeline restrictions for filing another bankruptcy were given more flexibility for situations exactly like yours.  If you filed a Chapter 13 bankruptcy and six years have passed since your filing, there are certain circumstances in which you file again.  The laws are very particular on this but if you filed a Chapter 13 originally and were unable to pay at least 70% of it, you can file a Chapter 7.  Or, you could potentially file another Chapter 13 if only two years have passed since you filed the first. 

Even if you have previously filed bankruptcy, there may be factors within your specific circumstances now that will allow you to file again.  Since the U.S. bankruptcy court looks at each case individually, we at the Bankruptcy Law Clinic can provide you with a qualified and experienced Florida bankruptcy attorney who can look at your situation and help you determine the best course of action to protect your family and assets from financial distress. 

Even if bankruptcy is not an option, we will be able to direct on how to get back on track financially, regardless of your current financial circumstances.  Don’t try to face the situation alone—professional help can be just the ticket to get you back on your feet without the stress you are currently facing.  

The Cash-For-Keys Option in Foreclosure

Foreclosure isn’t an easy process for anyone involved, including the lender.  There is a mountain of paperwork involved and extensive legal fees—two things that are never very attractive prospects.  This is why some banks have developed protocol for making the process as painless as possible, and have implemented solutions like “Cash for keys” to get homeowners out of the house.

 

Cash for keys is exactly what is sounds like: homeowners will be given the offer of cash in exchange for agreement to vacate the home after a certain period of time.  Usually, these agreements include waivers that the homeowners will not vandalize the home or strip it for items to sell, and will leave the home in good, clean condition when they vacate.

 

The reason banks are not hesitant to offer cash for keys is because the foreclosure process is a time-consuming, costly enterprise.  If they can vacate the homeowner with his/her consent through a cash incentive, they will often jump at the chance.

 

Some of the expenses considered when a bank negotiates their cash for keys terms are:

• A security deposit and first / last month's rent for a new home
• The cost of hiring movers or securing a rental truck
• Utility deposits
• Temporary living quarters such as a motel

If you have been offered a cash-for-key option in the Miami area and are not sure if the offer is reasonable, you need the expertise of a debt relief attorney.  There may be other options available to you such as Chapter 7 or Chapter 13 bankruptcy that will allow you to keep your home and not put your family through the difficult process of changing residences.   

Using the FDCPA in Foreclosure Defense

If your home is under the threat of foreclosure, you are likely overwhelmed.  In addition to the harassing phone calls, homeowners facing foreclosure also have to try to “keep their head on straight” and make important decisions that affect their family’s lives—something that is almost impossible to do when a creditor is calling you multiple times every day.  This situation can certainly wreak havoc on anyone’s level of ability to handle stress, which makes fixing the problem even more difficult.  However, there is good news.  According to Section 805(a)(2) of the Fair Debt Collection Practices Act, your lender is prohibited from calling you about your home’s foreclosure if they know that you are represented by a lawyer.

 

That’s why if you live in the Miami, Florida area and are facing the threat of foreclosure, it is extremely important that you reach out to a qualified bankruptcy attorney who can help you find ways of debt relief such as Chapter 7 or Chapter 13 bankruptcy.  This kind of relief provides a legal means in which you can not only potentially save your home from foreclosure—you can also stop the harassing phone calls and stress related to them.   This “breathing room” will give you time to think clearly and do everything within your power to save your house and save your family the turmoil and emotional trauma of having to move out of the place they know as “home”.

If your lender harasses you after seeking counsel in a foreclosure, they will be in violation of both the Federal and Florida versions of the Fair Debt Collection Act.  Once you have told them the name and phone number of your attorney and that you don’t want them to contact you anymore (and sorry just shouting “Speak to my attorney” doesn’t work), any further phone calls from them could result in $4,000 fines for them and the opportunity for a lawsuit from you.  In our office, we deal with hundreds of collection calls each week so that our clients can have peace of mind when their phones ring.  It’s only been on rare occasions that we’ve had to remind the collection agencies about the law.

The Importance of Showing up in Foreclosure Lawsuits

Woody Allen—the famous writer, actor and director—once said, “Eighty percent of success is showing up.” This statement is especially true when it relates to foreclosure defense and showing up in court.

 

When you get your first foreclosure notice, it may seem like the end of the world.  Visions of shame, horror, embarrassment and living on the streets may fill your mind.  Take a deep breath.  (Note- if you get a notice that says your property is going to be sold on a specific date, stop reading the rest of this article and speak to a bankruptcy/foreclosure defense attorney now.)

While your first reaction might be to ignore the situation and hope that it works itself out, not showing up to court is the worst thing you can do. You run the risk of having your foreclosure go through much more quickly than if you had taken a few simple steps to slow the process down.  So, when you get the foreclosure notice go speak to a qualified bankruptcy and/or foreclosure defense attorney, but no matter what, don’t miss that court date.

A bankruptcy attorney will be able to assist you in preparing foreclosure defense and can potentially help save your home through Chapter 13 or Chapter 7 bankruptcy.   

Divorce and Bankruptcy: Should I File For Both at the Same Time?

It’s no secret that money problems are one of the leading causes of divorce.  In fact, financial woes are often what couples state as the reason their differences became irreconcilable.  Therefore, the situation often arises that divorce and bankruptcy are considered simultaneously.  While it’s possible to file for both at the same time, it’s important to keep in mind that divorce and bankruptcy are two completely separate legal processes, and each must be handled separately. 

In fact, if you file for a bankruptcy while you are in the middle of the filing process for divorce, the divorce proceedings can actually slow down your bankruptcy.  And while the court handling the divorce will be able to make decisions regarding custody, child support, and alimony while the bankruptcy process is happening, it will have no jurisdiction over the couple’s mutual property – only the federal bankruptcy court will have control over that. 

Also, bankruptcy and divorce can be tricky when it comes to jointly owned debt.  If you are required to pay off certain debts as part of your divorce decree and your bankruptcy discharges these debts, your creditors could still go after your spouse if his or her name was on the debt.  Your spouse can then take you back to divorce court to recover the debt, which will likely be granted since it was in the original divorce decree.  Chapter 7 and Chapter 13 bankruptcy also does not discharge child support or alimony that is owed to your spouse as part of the divorce decree. 

The best thing to do is to wait until the divorce is finalized before you begin your bankruptcy process.  When you do it this way, the bankruptcy court will look at your required alimony and child support expenses, and consider these when determining your required monthly expenses.   

How long does the process take to file for bankruptcy?

Will My Bankruptcy Hurt My Co-Signer?

The decision to file for bankruptcy isn’t one that most people take lightly, especially if that decision will affect others.  An example of how your bankruptcy could affect others is if there is a co-signer on one or more of your debts.  In cases for which there is a co-signer, the obligation to repay the debt might still fall on your co-signer, even if your bankruptcy is granted.  Whether it does or not is usually dependent on whether you file Chapter 7 or Chapter 13.

In a Chapter 7 bankruptcy, your co-signer will likely be left with the responsibility of paying the debt, and it will likely not be discharged for him/her, even if it is discharged for you.  This means that you will no longer have the responsibility of paying it, but your co-signer will.  This type of situation can cause conflict among people if not carefully discussed, particularly if the co-signer is a close friend or family member with whom you have a lot of contact. 

In a Chapter 13 bankruptcy, your debts will not be completely discharged, but will rather be rearranged and placed on a court-mandated repayment plan.  If you make these payments on time, your co-signer will be under what is called a "co-debtor stay” and will not be held responsible for any of the debt while you pay it off.  They will also not be responsible for any discrepancy in the amount of debt owed before the bankruptcy and the final amount the court orders you to pay for that debt. 

Before you file for bankruptcy, it is important to remember that whatever debt you have in which a co-signer has signed with you, your late payments or missed payments will affect their credit negatively.  Co-signers often have a better credit rating than the primary signer, making their own score more vulnerable to taking hits when they agree to co-sign.  This is why you should be extremely cautious in asking someone to co-sign with you; if you are unable to pay the debt, it might result to a conflict between the two of you.  

One of my top ten favorite bankruptcy cases

The last step of the bankruptcy process is when you receive your discharge notice. Both you and your attorney receive this notice and it means that the court has wiped out your debt and you are now able to start over, debt free. I recently received a discharge notice for Miguel C. that caught my eye. His was an especially rewarding case. He had been a law enforcement officer for ten years and had partial ownership in a business. He earned over 80k a year but had over 50k in credit card debt and a growing family that made meeting his monthly obligations impossible. He had been told time and again by other attorneys that he did not qualify for a chapter 7 bankruptcy due to his income and business ownership. NOT TRUE. The “means test” which determines whether a person qualifies for a chapter 7 bankruptcy is based on both income and expenses. It takes a qualified, skilled bankruptcy attorney to determine whether a person qualifies for a chapter 7. Thanks to us, Mike was able to:

• Keep his primary home

• Get out from under an investment property that was dragging him down

• Keep his 2008 Toyota SUV

• Enjoy a better relationship with his family and loved ones

• Concentrate more at work without distracting collection calls or financial pressures.

Every week I cringe when I talk or meet a perspective client who “heard from a friend”, or “read online” about what a bankruptcy can or cannot do, what happens post bankruptcy or how someone should act prior to filing bankruptcy. Shouldn’t you get your information from a qualified bankruptcy attorney expert? To schedule your free initial consultation call us at 305-663-3281or email john@bankruptcylawclinic.net.

What is Bankruptcy?

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is often called the "Fresh Start" bankruptcy. Individuals are generally discharged of many types of unsecured debts such as credit cards, personal loans, medical bills and some judgments. Filing a Chapter 7 bankruptcy immediately stops your creditors from trying to collect. As a result, creditors cannot garnish your wages, empty your bank account, or go after your car, your house, and your personal belongings.

In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Each state has its own set of exemptions and our qualified bankruptcy attorneys will be able to outline the type of property that is exempt from liquidation in a Chapter 7.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is significantly different from a Chapter 7 bankruptcy. A Chapter 13 is a reorganization of debt, allowing debtors to repay all or a portion of their debts through a Chapter 13 plan, while protecting property and personal assets. The concept is similar to debt consolidation, but unlike most debt consolidation programs, it permits debtors to pay unsecured debt (i.e., a debt that is not secured by property) down without accruing interest (student loans are an exception) and without having to deal with those annoying calls from debt collectors.

Under a typical plan, you make monthly payments to a court-appointed bankruptcy trustee for generally three to five years. The amount of your monthly payment is determined by several factors, such as the amount of debt you have, your ability to repay and the extent that you have assets.

The bankruptcy trustee distributes the money to your creditors.

Contact us now at 305-663-3281 for free consultation.