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FAQ
The Bankruptcy Code is a set of federal laws that provides protection against creditors and a “fresh start” to those who are unable to pay their debts. Our attorneys help people navigate the bankruptcy system, understand their options, and obtain a solution to their financial problems.
We offer a free initial consultation in which we will talk about your situation and discuss what bankruptcy can do for you. There's no obligation, and if bankruptcy isn't right for you, we will let you know and suggest other alternatives. You've got nothing to lose except your debt.
If you would like to learn more before your consultation, here are some frequently asked questions about bankruptcy.
What is the Bankruptcy Code for?
Almost a century ago, the United States Supreme Court explained that one of the primary purposes of the Bankruptcy Code is to "relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes."
Over the past century, honest debtors across America have routinely sought bankruptcy protection, not just for their business misfortunes, but also because of the crushing weight of creditors, constantly pursuing payment of past medical bills and credit card debt. Maybe you had been able to keep your head above water before, but now because of divorce, a lost job or just the slowing of the economy, you find yourself sinking deeper and deeper in debt.
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Exactly what protection does bankruptcy provide?
Under federal law, when you file for bankruptcy, an “automatic stay” immediately takes effect. The automatic stay stops almost all collection efforts, including debt collector calls, paycheck garnishments, repossessions, foreclosures, and lawsuits. Creditors usually respect the automatic stay because they know that a violation may be punished as contempt of the bankruptcy court. The attorneys will not hesitate to defend our clients by taking appropriate action against creditors who ignore the automatic stay.
When you receive a discharge of your debts at the end of your bankruptcy, the automatic stay is replaced by a permanent injunction that prohibits creditors from trying to collect or otherwise enforce debts that were discharged. The discharge and the permanent injunction work together to give you a fresh start.
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What is Chapter 7 bankruptcy?
A Chapter 7 individual debtor surrenders any non-exempt assets to a bankruptcy trustee who sells the property and distributes the proceeds from the sale to creditors. In return, the debtor receives a discharge of his or her debts. Most people who file under Chapter 7 are able to exempt (i.e., protect from creditors) all of their property and don’t lose anything but debt. The Chapter 7 process usually takes about 3 to 4 months from the filing of the bankruptcy papers to the entry of the discharge order.
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What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is essentially a court-supervised debt repayment plan for individuals. In Chapter 13, the debtor pays his or her disposable income (i.e., income left over after paying living expenses) for a period of 3 to 5 years to a bankruptcy trustee for distribution to creditors. After successfully completing the Chapter 13 plan, the debtor receives a discharge for remaining debt not paid during the bankruptcy.
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What other types of bankruptcy are available?
Individuals can file under Chapter 11, which is more commonly used by businesses to reorganize. Because Chapter 11 bankruptcy is very complex and expensive, most people who want to restructure their debt will instead choose Chapter 13.
Chapter 12 bankruptcy, a hybrid of Chapters 11 and 13, is restricted to “family farmers” and “family fishermen.” Bankruptcies under Chapter 12 are rare, with only 7 such cases filed in Indiana throughout all of 2008.
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What is the “new bankruptcy law” I’ve heard about?
In 2005, Congress made a number of revisions to the Bankruptcy Code. These changes—largely the result of lobbying by banks, credit card companies, and other creditors—were intended to reduce the number of bankruptcy filings and encourage debtors who would otherwise file under Chapter 7 to repay some of their debt in Chapter 13 instead.
The good news is that the bark is worse than the bite. Most people who were able to file for Chapter 7 bankruptcy before 2005 will still be able to do so. From the debtor’s perspective, the primary effect of these changes is requiring you to jump through a few more hoops in order to have a successful bankruptcy. For example, before you file, you will have to participate in a credit counseling session, and before you obtain your discharge, you will have to take a financial education class. (Both of these can be done via Internet or telephone from the privacy of your home.)
The attorneys are thoroughly familiar with the current bankruptcy requirements and will be at your side to guide you through the process. Now, more than ever, anyone filing for bankruptcy should have the assistance of experienced counsel to avoid the pitfalls created by the 2005 bankruptcy law.
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Will I lose my house or car?
Probably not. In fact, bankruptcy can often help people keep their car and home. This question really raises two issues.
The first is protecting your assets in bankruptcy. In Indiana, a Chapter 7 debtor may exempt up to $15,000 of homestead equity and a total of $8,000 of equity in tangible personal property, which includes motor vehicles. (These amounts are doubled for married couples filing a joint Chapter 7 bankruptcy.)
“Equity” is the value of the property minus any debts secured by that property. So, for example, if your house is worth $100,000, but your mortgage balance is $90,000, then you have only $10,000 of equity in your home, which would be entirely exempt in Chapter 7 bankruptcy.
What can you do if you have equity above the Chapter 7 exemption amount? Chapter 13 bankruptcy allows you to protect all of the equity in your home or car.
The second issue is how bankruptcy affects debt secured by collateral. Your bankruptcy options for secured debt, such as a mortgage or car loan, depend upon your situation and the type of bankruptcy you choose. However, if you’re current on a secured debt and have the ability to keep paying it during and after your bankruptcy, chances are good there’s a way for you to keep the collateral. And if you’re behind on the debt, Chapter 13 may allow you to get caught up. Chapter 13 can be an excellent way to save a home after the lender has begun the foreclosure process.
In some situations, bankruptcy allows you to modify a secured debt. For example, if you’re “upside down” on a car loan, you may be able to reduce the balance to the value of the car. In Chapter 13, sky-high interest rates can sometimes be reduced to prime plus 1%–3%.
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I’ve been sued! Can bankruptcy help?
Defending yourself in a lawsuit can be expensive and exhausting. In most cases, bankruptcy will stop a lawsuit, discharge the plaintiff’s claim against you, and result in the lawsuit being dismissed. Even if the lawsuit is already over and a judgment has been entered against you, bankruptcy will usually discharge the judgment debt.
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Can I discharge all of my debt?
Not necessarily. Some debts cannot be discharged in bankruptcy. For example, student loans typically will not be discharged. Other nondischargeable debts include criminal fines, child support, and claims involving injury or death caused by drunk driving.
The rules on what can and can’t be discharged are complicated, but attorneys will carefully analyze your debts to determine whether bankruptcy will work for you. If it won’t, we will tell you so up front and recommend that you not file.
With that said, in most cases bankruptcy is very effective at discharging consumer debts such as credit cards, medical bills, unpaid utilities, and—if you decide to surrender the collateral—mortgages and car loans.
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Can I pick and choose which debts to list in my bankruptcy filing?
No. Bankruptcy requires you to tell the truth, the whole truth, and nothing but the truth. This includes listing all of your debts. However, once you receive your discharge, nothing stops you from voluntarily repaying a debt if that’s your choice.
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Will bankruptcy ruin my credit?
Most of the time, when someone is considering bankruptcy, his or her credit is already in pretty bad shape. Every month, more negative information is being added to the credit report as debts continue to go unpaid. Bankruptcy stops this process and allows you to start building good credit.
Occasionally somebody contemplating bankruptcy has been able to maintain “good credit” by constantly borrowing from one creditor to pay another. This tactic is doomed to fail at some point, especially in an economy where lenders are reducing credit lines for even the most creditworthy customers, and will come crashing down once you’re finally maxed out. Also, there’s more to good credit than just your repayment history—lenders also consider factors such as your income and how much debt you owe.
It’s true that bankruptcy is considered a negative by credit scoring systems. But this doesn’t mean you won’t be able to get credit after filing for bankruptcy. In fact, shortly after filing you’ll probably start receiving numerous solicitations from credit card companies and car dealers that specialize in lending to people who have been through bankruptcy. It’s even possible to obtain an FHA mortgage with favorable terms as soon as two years after you receive your discharge. As time goes on, your bankruptcy becomes less important in the eyes of lenders and eventually falls off your credit report altogether.
Finally, it’s important to put things in perspective. Your credit rating is simply a business assessment of whether a lender can profit by loaning you money. There are more important things in life, such as the overall well-being of you and your family.
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Will everyone know that I filed for bankruptcy?
Bankruptcy is, strictly speaking, a matter of public record. However, newspapers and other media typically don’t report on bankruptcy cases unless the debtor is a celebrity or a large business. With over 39,000 Indiana bankruptcy filings in 2008, most cases simply aren’t newsworthy.
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Am I a bad person if I file for bankruptcy?
Not at all. Over and over again, we find that people who contact us for help are honest, hardworking Hoosiers who simply can’t repay their debts even though they sincerely wish they could. Often this is due to circumstances beyond their control such as a lost job, medical expenses, or being sued. We firmly believe that if you’re unable to pay your creditors, then filing for bankruptcy is an act of responsibility. Instead of ignoring the situation, you’re addressing it head-on with the procedure that Congress created for people overwhelmed with debt.
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How am I supposed to pay for this? After all, I’m having money trouble!
If you decide that bankruptcy is right for you, we will probably advise you to stop paying certain debts. This is for two reasons. First, if you’re going to discharge a debt in bankruptcy, then continuing to pay it is throwing good money after bad. Second, in some situations, the bankruptcy trustee can actually sue a creditor who receives a payment made shortly before filing and redistribute that money to other creditors.
By reallocating money that’s currently being paid to creditors, most people are able to fund their bankruptcy at a price that’s much less than the amount of debt they’ll discharge. Also, in Chapter 13, we can even finance some or all of your legal fees via your debt repayment plan. Most of the time this doesn't increase the total amount you'll pay in Chapter 13—it just means that some of your payments will be redirected to your attorneys. The bottom line is that in almost all situations, we can help you pay for bankruptcy without suffering further financial hardship.
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