FAQ / BANKRUPTCY INFORMATION

THIS IS VERY IMPORTANT INFORMATION AND WILL BE EXTREMELY HELPFUL TO YOU, BUT ONLY IF YOU READ IT.

OVER THE PAST 32 YEARS I HAVE REPRESENTED CLIENTS IN THOUSANDS OF BANKRUPTCY CASES AND I HAVE USED THE EXPERIENCE GAINED HANDLING THOSE CASES IN PUTTING TOGETHER THIS INFORMATION, IN QUESTION AND ANSWER FORM, TO HELP YOU BEFORE, DURING AND AFTER YOUR BANKRUPTCY AND TO HELP YOU AVOID MANY PROBLEMS THAT HAVE BEEN ENCOUNTERED IN THE PAST.

Please remember, however, that information like this can not be a substitute for a consultation with, and the advice of an experienced bankruptcy attorney.

FAQ / BANKRUPTCY INFORMATION

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GENERAL BANKRUPTCY INFORMATION

1. WHAT IS THE PURPOSE OF THE BANKRUPTCY LAW?

2. WHAT KINDS OF BANKRUPTCIES ARE THERE?

3. WHICH BANKRUPTCY IS BEST FOR ME?

4.        WHAT ARE THE MOST COMMON REASONS FOR A CHAPTER 7 BANKRUPTCY?

5.        WHO CAN FILE A CHAPTER 7 BANKRUPTCY PETITION?

6.        WHAT HAPPENS WHEN I FILE A CHAPTER 7 BANKRUPTCY?

7.        WHAT HAPPENS AFTER YOUR BANKRUPTCY PETITION IS FILED AND HOW LONG DOES THE WHOLE BANKRPUTCY PROCESS TAKE?

8.        WILL I HAVE TO GO TO COURT?

9.        WHO DEALS WITH MY CREDITORS AND BILL COLLECTORS DURING THE BANKRUPTCY?

10.        WILL THE BANKRUPTCY STOP BILL COLLECTORS FROM CALLING?

11.        WILL THE BANKRUPTCY STOP CREDITORS FROM MAILING ME BILLS?

12.        WHAT IS THE “AUTOMATIC STAY”?

13.        MY CREDITORS IGNORED THE AUTOMATIC STAY. WHAT DO I DO?

14.        WILL MY EMPLOYER AND LANDLORD FIND OUT ABOUT MY BANKRUPTCY?

15.        CAN MY EMPLOYER FIRE ME FOR FILING BANKRUPTCY?

16.        CAN I GO TO JAIL IF I FILE BANKRUPTCY OR DON’T PAY MY DEBTS?

17.        DOES THE SPOUSE OF A MARRIED PERSON ALSO HAVE TO FILE BANKRUPTCY?

18.        WHAT SHOULD I DO TO PREPARE FOR FILING BANKRUPTCY?

19.        CAN I FILE A BANKRUPTCY FOR CERTAIN DEBTS, BUT NOT INCLUDE OTHER DEBTS?

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ASSETS/PROPERTY

20.        WHAT IS AN ASSET?

21.        DO I HAVE TO DISCLOSE ALL OF MY ASSETS?

22.        WHAT PROPERTY DO DEBTORS HAVE TO GIVE UP IN CHAPTER 7?

23.        CAN I KEEP MY HOME AND AUTOMOBILE?

24.        WHAT ABOUT MY MOBILE HOME?

25.        WHAT ABOUT TAX REFUNDS?

26.        ARE PENSION PLANS AND 401(K) PLANS EXEMPT?

27.        ARE IRA ACCOUNTS EXEMPT?

28.        WHAT ABOUT LIFE INSURANCE POLICES WITH A CASH SURRENDER VALUE?

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DEBTS/LIABILITIES/CREDITORS

29.        WHAT IS A DEBT/LIABILITY?

30.        WHAT IS A SECURED DEBT?

31.        WHAT IS A PRIORITY DEBT?

32.        WHAT IS AN UNSECURED DEBT?

33.        DO ALL CREDITORS HAVE TO BE LISTED ON BANKRUTPCY PETITION/SCHEDULES?

34.        IS IT TRUE THAT I CAN DISCHARGE (CANCEL / ELIMINATE) ALL DEBTS BY FILING BANKRUPTCY?

35.        WHAT DEBTS ARE NOT DISCHARGED (CANCELLED / ELIMINATED) IN BANKRUPTCY?

36.        WHAT ABOUT BAD CHECKS?

37.        IF I AM DIVORCED, WILL BANKRUPTCY ELIMINATE MY OBLIGATION TO PAY MARITAL DEBTS?

38.        ARE ALIMONY AND CHILD SUPPORT DISCHARGEABLE?

39.        CAN I DISCHARGE STUDENT LOANS?

40.        WILL BANKRUPTCY STOP A CREDITOR FROM TAKING ACTION AGAINST ME ON A JUDGEMENT?

41.        WILL BANKRUPTCY STOP WAGE GARNISHMENT?

42.        WILL A BANRUPTCY REMOVE A JUDGMENT LIEN?

43.        IF A DEBTOR IS BEHIND ON HOUSE OR CAR PAYMENTS, CAN CHAPTER 7 STOP FORECLOSURE OR REPOSSESSION FROM TAKING PLACE?

44.        WHAT IS A REAFFIRMATION AGREEMENT AND HOW DOES IT WORK?

45.        CAN A CHAPTER 7 DEBTOR MAKE PAYMENTS ON A SECURED DEBT AND KEEP THE PROPERTY THAT IS COLLATERAL FOR THE DEBT WITHOUT SIGNING A REAFFIRMATION AGREEMENT?

46.        IF I HAVE THE OPTION, WHAT ARE THE PROS AND CONS OF NOT SIGNING A REFFIRMATION AGREEMENT?

47.        CAN I KEEP ANY CREDIT CARDS?

48.        CAN A CHAPTER 7 DEBTOR MAKE PAYMENTS ON A DISCHARGED DEBT?

49.        WHAT CAN BE DONE IF A DEBTOR FALLS BEHIND IN PAYMENTS AFTER OBTAINING A CHAPTER 7 DISCHARGE?  CAN ANOTHER BANKRUPTCY CASE BE FILED?

50.        IF I CO-SIGNED FOR A DEBT OR IF ANOTHER PERSON CO-SIGNED FOR ME, HOW DOES THE BANKRUPTCY AFFECT THE OBLIGATION (DEBT) AND THE CO-SIGNER?

51.        WHAT SHOULD A DEBTOR DO IF A CREDITOR DOES DEMAND PAYMENT OF A DEBT THAT IS LISTED IN THE BANKRUPTCY SCHEDULES?

52.        WHAT IF I FAIL TO LIST A CREDTOR ON THE BANKRUPTCY PAPERS?

53.        DOES A BANKRUPTCY CASE AUTOMATICALLY REMOVE LIENS—SUCH AS MORTGAGES—AGAINST A DEBTOR’S PROPERTY?

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AFTER BANKRUPTCY/REESTABLISHING YOUR CREDIT

54.        HOW DO I KNOW WHEN MY BANKRUPTCY CASE IS COMPLETED, AND I AM NO LONGER IN BANKRUPTCY?

55.        WILL THE FACT THAT I FILED BANKRUPTCY APPEAR ON CREDIT REPORTS?

56.        WILL A BANKRUPTCY AUTOMATICALLY “CLEAN UP” MY CREDIT REPORT?

57.        HOW CAN I REESTABLISH MY CREDIT AFTER BANKRUPTCY?

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GENERAL BANKRUPTCY INFORMATION

1. WHAT IS THE PURPOSE OF THE BANKRUPTCY LAW?

It was enacted into law by Congress to help individuals who cannot pay their debts.  The bankruptcy law operates to give debtors a fresh start, by canceling many of their debts, through an order of the court called a “discharge”.

2. WHAT KINDS OF BANKRUPTCIES ARE THERE?

Generally speaking, for individuals there are two types, Chapter 7, which is often referred to as straight bankruptcy, and Chapter 13, referred to as a wage earner bankruptcy.

3. WHICH BANKRUPTCY IS BEST FOR ME?

I will help you answer that question.  However, for the vast majority of individuals the best bankruptcy is Chapter 7.  But there are three reasons people want to file a Chapter 13 bankruptcy.  The reasons are:  (1) The debtor is behind on house or car payments and will not be able to get those payments current within 30 days after the filing of a Chapter 7 bankruptcy.  Chapter 13 bankruptcy gives a person much more time to get past due payments caught up.  (2) The debtor has a substantial amount of non-exempt property.  (3) The debtor’s income is more than the debtor’s average monthly expenses.  I usually advise clients not to file a Chapter 13 bankruptcy for reasons 1 or 2 unless reason number 3 also applies.  Again, which bankruptcy is best for you depends on the special circumstances existing in your particular situation.

4.        WHAT ARE THE MOST COMMON REASONS FOR A CHAPTER 7 BANKRUPTCY?

The most common reasons for consumer bankruptcy are: unemployment; decrease in wages; large medical expenses; seriously overextended credit (including credit cards); marital problems and other large unexpected expenses.

5.        WHO CAN FILE A CHAPTER 7 BANKRUPTCY PETITION?  

Almost any individual, partnership or corporation may file a Chapter 7 bankruptcy petition if he or she resides, has a domicile, a place of business, or property in the United States.  If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition. If you were granted a Chapter 7 discharge in a prior case within the last 8 years, you might not be entitled to receive a discharge in bankruptcy and probably are not a candidate for a Chapter 7 bankruptcy proceeding.

6.        WHAT HAPPENS WHEN I FILE A CHAPTER 7 BANKRUPTCY?  

You commence a Chapter 7 bankruptcy proceeding by filing a “petition” with the bankruptcy court.  The person filing a Chapter 7 bankruptcy is referred to as the “debtor.” The debtor is required to disclose to the court all his or her property and debts. The debtor then receives a discharge of all dischargeable debts.

7.        WHAT HAPPENS AFTER YOUR BANKRUPTCY PETITION IS FILED AND HOW LONG DOES THE WHOLE BANKRPUTCY PROCESS TAKE?  

First, the bankruptcy court will send the creditors listed in your petition a “Notice of Bankruptcy Case” informing them that you have filed the petition. You and I will also receive this notice.  This notice is usually mailed within a week after your bankruptcy case is filed.  The notice will have my name in the return address portion of the envelope but it actually comes from the bankruptcy court. About 30 to 40 days after filing the bankruptcy petition, you will have to attend the Meeting of Creditors that is discussed below. And, under normal circumstances, the Bankruptcy Court will automatically issue you a discharge (this means your case is over) 65 to 75 days after the Meeting of Creditors. As you can see, it will normally take 3 to 4 months from the time you file until you receive a discharge.

8.        WILL I HAVE TO GO TO COURT?  

About 20 to 40 days after filing the bankruptcy petition, you will have to attend a hearing presided over by a bankruptcy trustee.  This hearing is called the Meeting of Creditors. The trustee is not a judge, but an individual appointed by the United States Trustee to oversee bankruptcy cases. At the Meeting of Creditors the trustee will ask you questions under oath regarding the contents of your bankruptcy papers, your assets, debts and other matters. Creditors will also be permitted to ask you questions, although in the majority of cases creditors do not ask questions at the Meeting of Creditors. Prior to this hearing I will send you a letter giving you more details about the meeting, telling you some of the questions that will be asked and giving you directions on how to get to the place where the meeting will be held. After the initial meeting you normally will not need to return to court. However, if a creditor or trustee files a motion or adversary action you may have to appear in court with me.

9.        WHO DEALS WITH MY CREDITORS AND BILL COLLECTORS DURING THE BANKRUPTCY?  

Usually, this office deals with all creditors.

10.        WILL THE BANKRUPTCY STOP BILL COLLECTORS FROM CALLING?  

Yes. The automatic stay prevents bill collectors from calling you or taking any action to collect debt. After your case has been filed and you have received the notice in the mail, you should also give date of filing and case number information to a creditor who calls. If you refer bill collectors to this office before paying the retainer the phone calls will not stop.  If a creditor continues to call you after you have advised the creditor that you are filing bankruptcy and that I’m your attorney, then you need to get the name of the person calling, his/her telephone number and extension number.

11.        WILL THE BANKRUPTCY STOP CREDITORS FROM MAILING ME BILLS?  

Eventually. But they will stop quicker if you advise them once they are advised of a case number and file date.

12.        WHAT IS THE “AUTOMATIC STAY”?  

When you file a bankruptcy petition, your creditors are automatically barred from taking any action to collect the debts owed them or seizing your property. However, the bankruptcy law does provide some exceptions. For example, a bankruptcy petition does not stay the commencement or continuation of a criminal action (unless brought to collect a debt), an action to collect alimony, maintenance or support from certain assets or income, or an action to enforce a government’s police or regulatory power.

13.        MY CREDITORS IGNORED THE AUTOMATIC STAY. WHAT DO I DO?  

First make sure the creditor is aware that you have filed bankruptcy and ask them to stop collection efforts. If the creditor does not respond, you should notify this office so we can take the appropriate action.

14.        WILL MY EMPLOYER AND LANDLORD FIND OUT ABOUT MY BANKRUPTCY?  

Bankruptcy petitions are public records.  However, under normal circumstances, unless your employer or landlord is a creditor, they will not know you filed a bankruptcy petition. If your employer or landlord is a creditor, it must be listed as a creditor on the schedules and receive notice of the bankruptcy proceeding.

15.        CAN MY EMPLOYER FIRE ME FOR FILING BANKRUPTCY?  

Federal Bankruptcy Law prohibits governmental units and private employers from discrimination against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt.

16.        CAN I GO TO JAIL IF I FILE BANKRUPTCY OR DON’T PAY MY DEBTS?  

No.

17.        DOES THE SPOUSE OF A MARRIED PERSON ALSO HAVE TO FILE BANKRUPTCY?  

No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable, then it might be advisable to have only one spouse file.

18.        WHAT SHOULD I DO TO PREPARE FOR FILING BANKRUPTCY?  

First, you should consult with an attorney.  An attorney can help you plan for the bankruptcy and decide when to file a bankruptcy petition. A few specific items are worth mentioning.

  1.  If you intend to file bankruptcy you should stop using your credit cards. If you borrow money with the specific intent of discharging the debt in bankruptcy instead of paying it back, the debt is not dischargeable. In addition, three specific circumstances are worth mentioning: (a) certain luxury purchase of more than $500.00 within 90 days of the bankruptcy filing are presumed non-dischargeable; (b) cash advances aggregating $750.00 within 70 days of the bankruptcy filing are presumed non-dischargeable; and (c) debts involving materially false financial statements are non-dischargeable under certain circumstances.
  2.  Don’t transfer you assets to friends, family or business associates to protect the assets from your creditors. And don’t give a security interest in any of your property to any of these people.  If you have done either within the last year you must list it on your worksheet.  The transfer may be considered a fraudulent conveyance. If it is, you may lose both the property and your right to a bankruptcy discharge.
  3. Don’t destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result.
  4. Carefully choose the creditors you pay. Some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away. I will advise you on what debts should and shouldn’t be paid while you prepare to file a bankruptcy petition.

19.        CAN I FILE A BANKRUPTCY FOR CERTAIN DEBTS, BUT NOT INCLUDE OTHER DEBTS?  

No.

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ASSETS/PROPERTY

20.        WHAT IS AN ASSET?          

Everything you have, or have a right to receive, is an asset (property).  Assets are divided into two categories, real property and personal property.  Real property is land/real estate and includes houses, buildings, condominiums and in most cases mobile homes that are located on the land/real estate you own.  Personal property is everything else.

21.        DO I HAVE TO DISCLOSE ALL OF MY ASSETS?  

Yes. If you knowingly and fraudulently conceal an asset you may be guilty of a crime. In addition, the court can deny your discharge.

22.        WHAT PROPERTY DO DEBTORS HAVE TO GIVE UP IN CHAPTER 7?  

Debtors in Chapter 7 are required to give up “nonexempt” property that they own at the time of the filing; they are allowed to keep both “exempt” property that they own at the time of filing and any property that they receive a right to own after the bankruptcy filing. You have the following exemptions:

General household goods and wearing appearing - $3,000 (single), $6,000 (joint) in value; Jewelry, not to exceed $500 in value plus $1,500 for wedding rings; Professional books or tools of the trade, $3,000 value; Any other property not exceeding $600 per debtor. If you have dependents, you will also get an additional general exemption for being head of a family in the amount of $1,250 plus $350 per child.

If all of a debtor’s property is exempt, which is normally the situation, then the debtor does not have to give up any property in Chapter 7, but may still obtain a discharge.

23.        CAN I KEEP MY HOME AND AUTOMOBILE?

 In many cases you can retain your home and automobile in a Chapter 7 bankruptcy proceeding. You will lose your home or automobile in a Chapter 7 if (1) you are behind in making payments on a loan secured by the home or automobile and cannot get current on your payments within 30 days of filing the bankruptcy, or (2) the home or automobile has equity (i.e., a liquidation value in excess of the amount owed to creditors with liens against the property) in excess of $15,000.00 for your home and $3,000.00 per person for your car.  However, as a practical matter, the amount can be more than this. It is very important that I discuss this with you and get the information I need about your home and automobile.

24.        WHAT ABOUT MY MOBILE HOME?

 If you own the real estate the mobile home is on it will normally be treated just like that mentioned above for a home. However, if you do not own the real estate the mobile home is on, the exemption is $5,000 per person.

25.        WHAT ABOUT TAX REFUNDS?

Tax refunds and income tax credits that you will be eligible to receive or do receive during your bankruptcy are an asset and may become part of the bankruptcy estate.  The amount of the refund or tax credit you will be allowed to keep will depend on the exemptions you have available.

26.        ARE PENSION PLANS AND 401(K) PLANS EXEMPT?  

The United States Supreme Court has held that pension plans, 401(k) plans, and other “ERISA-qualified plans” are generally “excluded” from the bankruptcy estate.

27.        ARE IRA ACCOUNTS EXEMPT?

 Most IRA accounts are qualified plans and you will be allowed to keep them.

28.        WHAT ABOUT LIFE INSURANCE POLICES WITH A CASH SURRENDER VALUE?  

Life insurance policies with a cash surrender value are exempt up to a certain amount.

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DEBTS/LIABILITIES/CREDITORS

29.        WHAT IS A DEBT/LIABILITY?

 It is money owed to another person or company.  Debts and liabilities are also referred to as loans, claims and obligations.  Debts are divided into three categories, secured debts, priority debts and unsecured debts.

30.        WHAT IS A SECURED DEBT?  

A secured debt (loan) is one when the lender/creditor has a security interest in your property.  A secured debt is also referred to as a mortgage or a lien and the property (asset) that is the security for the debt is referred to as collateral.  Common examples of secured debt are home loans, car loans and mobile home loans.

31.        WHAT IS A PRIORITY DEBT?          

Unpaid taxes owed to any Federal, State or local government.

32.        WHAT IS AN UNSECURED DEBT?  

This is a debt (loan) when the lender/creditor does not have a security interest in any of your property/assets.  Common examples of unsecured debt are credit cards, medical bills, signature loans and deficiencies on cars and homes that have previously been repossessed or foreclosed.  (A deficiency resulting from a foreclosure or repossession is the amount of the debt plus expenses of sale less the amount the asset is sold from.) Whether a debt is secured or unsecured is something you and I can discuss.  

33.        DO ALL CREDITORS HAVE TO BE LISTED ON BANKRUTPCY PETITION/SCHEDULES?  

Yes. All of the debts have to be scheduled (listed in your petition), with the name and address of the creditors. This is so they can receive notice of the bankruptcy.  Sometimes debtors think that they should omit a creditor because they want to continue to pay the debt. This would violate the law, and it is unnecessary, because a debtor can always choose to pay a debt voluntarily, even though the debt has been discharged and there is no legal obligation to make the payment. However, creditors are prohibited from taking any action to collect discharged debts.

34.        IS IT TRUE THAT I CAN DISCHARGE (CANCEL / ELIMINATE) ALL DEBTS BY FILING BANKRUPTCY?  

The underlying policy of bankruptcy law is that the honest debtor, who is in debt beyond the ability to repay the debt, should receive a fresh start through the discharge of debts. Normally all unsecured debts and those secured debts where you are giving up (surrendering) the collateral are discharged.  However, some debts are not discharged in bankruptcy.

35.        WHAT DEBTS ARE NOT DISCHARGED (CANCELLED / ELIMINATED) IN BANKRUPTCY?  

Generally speaking, the following debts will not be discharged: taxes; spousal (alimony) and child support; debts arising out of willful misconduct and/or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; non-dischargeable debts from a prior bankruptcy; student loans; criminal fines and penalties and forfeitures.  And any debts incurred after the filing date of the bankruptcy will not be discharged.  Also, if you have decided to keep property (collateral) that is security for loan/debt, that loan/debt will not be discharged.

36.        WHAT ABOUT BAD CHECKS?  

A bad check is not a debt but it may be an insufficient funds check that could be considered a criminal offense.  You should plan on paying any outstanding bad (insufficient funds) checks.  But discuss this with me.

37.        IF I AM DIVORCED, WILL BANKRUPTCY ELIMINATE MY OBLIGATION TO PAY MARITAL DEBTS?  

In general, you will be discharged from all dischargeable marital debts. However, if at the time of the dissolution you and your ex-spouse entered into a property settlement agreement and you agreed to assume and/or pay certain debts of the marriage (marital debts), then these debts will not be eliminated.

38.        ARE ALIMONY AND CHILD SUPPORT DISCHARGEABLE?

 Alimony, maintenance and child support payments generally are not dischargeable.

39.        CAN I DISCHARGE STUDENT LOANS?

Generally, student loans are not discharged in bankruptcy. But the bankruptcy law does provide that a student loan may be discharged if it is neither “insured or guaranteed by a state governmental unit” nor “made under any program funded in whole or in part by a state governmental unit” AND the student can prove that paying the loan will “impose an undue hardship on the debtor and the debtor’s dependents”.  But this is not automatic. You will have to file an adversary proceeding in the bankruptcy court to obtain a court order declaring the debt discharged. However, under laws that went into effect on January 1, 1999, this is rarely successful. Also this proceeding involves additional attorney fees.

40.        WILL BANKRUPTCY STOP A CREDITOR FROM TAKING ACTION AGAINST ME ON A JUDGEMENT?  

Yes. Most actions by creditors against you as a result of civil judgments (judgments resulting from lawsuits) are stopped by bankruptcy.

41.        WILL BANKRUPTCY STOP WAGE GARNISHMENT?  

Yes, but it may take 2 or 3 weeks.  However, you will get back all money earned and taken out of your check after the date of the filing of your bankruptcy.

42.        WILL A BANRUPTCY REMOVE A JUDGMENT LIEN?

 If a creditor has obtained a judgment against you and has filed the judgment with the county Circuit Clerk and Recorders office, this is a “judgment lien”. In most cases a special motion can be filed with the bankruptcy court to have the judgment lien removed. Before I can file this motion you must provide me with the caption of the case, including case number, the amount of the judgment and if the judgment was recorded in the Recorders office, the book and page where it is recorded.

43.        IF A DEBTOR IS BEHIND ON HOUSE OR CAR PAYMENTS, CAN CHAPTER 7 STOP FORECLOSURE OR REPOSSESSION FROM TAKING PLACE?

Yes, but only temporarily. Whenever any bankruptcy case is filed, the creditors are stopped from taking action to collect the debts that were owed at the time of the bankruptcy. This feature of bankruptcy is called the “automatic stay”. The automatic stay stops a foreclosure or repossession from going forward. However, no bankruptcy filing allows a debtor to keep property that is security for a loan without making payments on the loan. For example, debtors with home mortgages and car loans cannot keep their homes and cars without making payments. As soon as the bankruptcy case is closed, the automatic stay terminates, and the creditor can proceed with foreclosure or repossession. If there is a foreclosure, you will receive notice of the foreclosure sale (usually by certified mail) and a notice of the foreclosure will appear in the local newspaper. Moreover, if the debtor is not current on payments, a creditor may ask the court to terminate the automatic stay while the bankruptcy is still pending and, in Chapter 7, creditors are usually able to terminate the automatic stay. In order to keep property that is security for a loan, a debtor must be current on the debt, or get current within 30 days of the filing of the bankruptcy, and must stay current from that time forward with the creditor who holds the lien on that property.  Sometimes a debtor who wants to keep a secured debt may sign a reaffirmation agreement.

44.        WHAT IS A REAFFIRMATION AGREEMENT AND HOW DOES IT WORK?

 A reaffirmation agreement is an agreement by a debtor and a creditor about how to treat a particular debt that would otherwise be discharged in the debtor’s bankruptcy. Usually, the debt is secured by collateral that the creditor could repossess or foreclose on. In the reaffirmation agreement, the debtor agrees to pay all of the debt, usually, according to schedule. In exchange, the creditor agrees not to repossess or foreclose on collateral that secures the debt, as long as the debtor makes the agreed-upon payments. A valid reaffirmation agreement puts the debtor under a legal obligation to pay back the entire amount agreed upon, even if this is more than the value of the collateral the debtor is keeping. So if the debtor defaults in the payments required under the reaffirmation agreement, the creditor can repossess or foreclose, and then seek a personal judgment against the debtor if the sale of the collateral does not satisfy the debt.

However, in order for a reaffirmation agreement to be valid, several requirements must be met, including the following: (1) the agreement has to be entered into before the debtor receives a discharge; (2) the agreement has to be filed with the court and (3) the attorney has to certify that it will not create a serious problem for the debtor. The agreement must be voluntary; no one can force either the debtor or a creditor to enter into a reaffirmation. Finally, debtors are given the right to change their minds: a debtor may cancel any reaffirmation agreement within 60 days after the agreement is filed with the court or any time before discharge, whichever is later.

If any of the requirements for a reaffirmation have not been complied with, the agreement may not be binding. In that event, the debtor would have no personal obligation to make payments under the agreement, but could lose the property that secures that debt.

45.        CAN A CHAPTER 7 DEBTOR MAKE PAYMENTS ON A SECURED DEBT AND KEEP THE PROPERTY THAT IS COLLATERAL FOR THE DEBT WITHOUT SIGNING A REAFFIRMATION AGREEMENT?

 Maybe.  If a debtor wants to keep a secured debt and the property that is collateral for that debt, the debtor may be able to do so without signing a reaffirmation agreement. But the debtor must continue to make the payments on the secured debt. This is something you will need to discuss with me because there are situations when you will be required to sign a reaffirmation agreement or may want to sign a reaffirmation agreement.  

        

46.        IF I HAVE THE OPTION, WHAT ARE THE PROS AND CONS OF NOT SIGNING A REFFIRMATION AGREEMENT?  

The reason not to sign a reaffirmation agreement is that if the property (collateral) securing the loan is repossessed the creditor cannot file a lawsuit against you to recover any deficiencies.  The same principle applies if there is a loss and the insurances proceeds are not sufficient to pay off the loan.  The negative results of not signing a reaffirmation agreement will vary from creditor to creditor but can include the following: the creditor will not mail payment notices to you; the creditor tells you they will not work with you on future late payments; the creditor tells you they will not give you the balance due on your loan; and the creditor saying that your account will be reported to the credit reporting agencies as in default.  However, I believe all of these negatives can be dealt with by simply making your payments on time.

 

47.        CAN I KEEP ANY CREDIT CARDS?  

I normally advise my clients not to keep any credit cards that have a balance due on them.  One reason for this advice is that many credit card companies will cancel your credit card after you file bankruptcy, even if your payments are current.  Also, credit cards with no balance may be cancelled. And you will have the opportunity to get credit cards after the bankruptcy.  If you have any questions about whether or not to keep a credit card you will need to ask me those questions.

48.        CAN A CHAPTER 7 DEBTOR MAKE PAYMENTS ON A DISCHARGED DEBT?

 Yes. Even though a debt has been discharged, the debtor can still make a voluntary payment of the debt. This often happens, for example, with debts that are owed to family members or friends. But the key to this kind of payment is that it must be entirely voluntary; the debtor has no legal obligation to pay a discharged debt, and the creditors can take no action to pressure the debtor into making payments.

49.        WHAT CAN BE DONE IF A DEBTOR FALLS BEHIND IN PAYMENTS AFTER OBTAINING A CHAPTER 7 DISCHARGE?  CAN ANOTHER BANKRUPTCY CASE BE FILED?

The discharge in a Chapter 7 case only covers the debts that were incurred before the case was filed. The bills that a debtor incurs after the case is filed are not discharged. The hope is that, after their old debts are canceled by the discharge, debtors will be able to pay their new obligations as they become due. But unexpected circumstances, such as illness or loss of employment, may again put debtors in a situation where they cannot pay their bills. In this situation, a debtor could file another Chapter 7 case, but there might not be a right to discharge. After a debtor receives a discharge in a Chapter 7 case, the debtor only has the right to receive a discharge in a later Chapter 7 case if the later case is filed at least eight years after the first case was filed.

50.        IF I CO-SIGNED FOR A DEBT OR IF ANOTHER PERSON CO-SIGNED FOR ME, HOW DOES THE BANKRUPTCY AFFECT THE OBLIGATION (DEBT) AND THE CO-SIGNER?

 If the debt is a dischargeable debt then you will not have to pay it.  The co-signer will become primarily responsible for the debt.  If a person co-signed for you on a secured debt (home, vehicle, mobile home, etc.) and if you surrender the property, the co-signer will become responsible for any deficiency that is owed after the property is sold. If you co-signed for another person on a secured debt and if that person wants to keep the property, he or she must continue making the payments.  And this is true, even if the person stops receiving payment notices.

51.        WHAT SHOULD A DEBTOR DO IF A CREDITOR DOES DEMAND PAYMENT OF A DEBT THAT IS LISTED IN THE BANKRUPTCY SCHEDULES?

 If a creditor who is listed in the debtor’s schedules attempts in any way to collect a scheduled debt, the debtor should inform the creditor that a bankruptcy case has been filed and request that the creditor stop the collection efforts. Also, you should give my name and telephone number to the creditor. If improper collection action continues, you should advise this office.

52.        WHAT IF I FAIL TO LIST A CREDTOR ON THE BANKRUPTCY PAPERS?

 If you intentionally omit a creditor form your schedules, you have committed perjury. However, sometimes a creditor is not known to exist at the time the schedules are filed or is accidentally omitted. As soon as you realize that a creditor has been omitted, you should notify this office with all the information necessary to amend the schedule (the amount of the debt, the type and value of any collateral, and the name and address of the creditor).  If your bankruptcy petition must be amended to add a creditor there will be an additional charge of $50 per amendment plus $5 per creditor added.  If you do not list a creditor, and the creditor does not otherwise learn about your bankruptcy proceeding in time to participate in the proceeding, the debt owed to the creditor might not be discharged.

53.        DOES A BANKRUPTCY CASE AUTOMATICALLY REMOVE LIENS—SUCH AS MORTGAGES—AGAINST A DEBTOR’S PROPERTY?  

No. Liens can be placed on a debtor’s property in many different ways. Some are by agreements, like mortgages and auto liens. Others are by operation of the law, like property tax liens on a debtor’s home. And some liens are to enforce judgments that have been entered against the debtor. Certain liens can never be removed in a bankruptcy case except by paying the underlying indebtedness (examples of these liens are home mortgages, most car loans and certain tax liens), and others can only be removed if special action is taken in the bankruptcy case. So, if a debtor has any question about liens on his or her property, these matters should be discussed with me.

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AFTER BANKRUPTCY/REESTABLISHING YOUR CREDIT

54.        HOW DO I KNOW WHEN MY BANKRUPTCY CASE IS COMPLETED, AND I AM NO LONGER IN BANKRUPTCY?  

At the conclusion of an individual’s bankruptcy case, the court enters an Order of Discharge. A copy of this order is sent to you. If the bankruptcy trustee does not have assets to distribute to creditors and if no objections to discharge have been filed, your bankruptcy case will be closed at the time you receive the notice of discharge and you will receive a letter from me confirming you bankruptcy case is over. The case will also be closed if the court enters an order of dismissal.

55.        WILL THE FACT THAT I FILED BANKRUPTCY APPEAR ON CREDIT REPORTS?

 The bankruptcy will be listed on credit reports for a period of 10 years.

56.        WILL A BANKRUPTCY AUTOMATICALLY “CLEAN UP” MY CREDIT REPORT?  

No.

57.        HOW CAN I REESTABLISH MY CREDIT AFTER BANKRUPTCY?

        FIRST, CLEAN UP YOUR CREDIT REPORT.  You must order your credit report from all three of the major credit reporting agencies.  Once you receive the reports look them over for mistakes. The major mistake that is normally on the reports is that certain debts that were included in your bankruptcy are shown as still outstanding.  This is common and can be corrected by the following the procedure each credit reporting agency sets out in the information you will receive from them.  Prepare your response to credit reporting agency’s mistake and mail it to the credit-reporting agency by certified mail.  To prove that a particular debt was included in your bankruptcy you must provide the credit-reporting agency with a copy of the following: Notice of Bankruptcy; Notice of Discharge; and Schedules D, E and F from your bankruptcy petition.  The credit reporting agencies have 30 days to respond to you and tell you what actions they have taken.  If you are not satisfied with the response you get from a credit reporting agency and you believe you have a good case that a certain correction should be made to your credit report, you can write the Federal Trade Commission and send a copy of that letter to the credit-reporting agency.  The address for the FTC will be in the credit reports.

        SECOND, DEVELOP A GOOD CREDIT HISTORY.  The best way to obtain new credit is to make payments religiously and to have 5 good, active sources of credit.  Your credit reports will tell you how many credit sources you now have.  (If you elected to keep a secured debt, usually a vehicle or home during your bankruptcy this may count as one or more of the 5 sources of credit.)  Also, getting new credit cards can be very useful in developing these 5 sources of credit. WARNING.  If you decide to get new credit cards to help reestablish your credit you must remember the following rules:  (1) A credit card is no longer a convenience, it is now a tool, a tool to help you reestablish your credit; (2) Never carry a balance on your credit card, pay it off in full every month and pay it on time, absolutely no exceptions; (3) Do not use your credit card around the holidays, November and December.  And if the new credit cards you get are unsecured cards instead of secured credit cards, you will have an annual fee of $40 to $60 per card. This is just a cost of reestablishing your credit.

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