13 vs. chapter 7?
are advantages to filing Chapter 13 over Chapter 7 bankruptcy.
advantage is if you had people co-sign loans or other credit. Your
creditors cannot collect from your cosigners until it is clear the
Chapter 13 plan will not pay the amount owed. In contrast, if you
file Chapter 7, your creditors have the right to immediately demand
payment from your cosigners.
advantage is the discharge of debts under Chapter 13 is broader than
it is under Chapter 7. For example, if you successfully complete a
repayment plan under 13, individual creditors can't require you to
pay in full if you gave them false financial information when you
applied for credit, or if you used some other fraudulent means to
get credit. Under 7 however, any creditor to whom you gave false or
fraudulent information may object to discharging you from repaying
the debt you owe.
Third, you can
file under 13 more often than under 7. The law forbids you from
filing under Chapter 7 more than once every six years. However,
Chapter 13 allows you to file repeatedly.
may be when you reapply for credit after the end of your bankruptcy
proceeding. Potential creditors might prefer to see a Chapter 13 on
your credit record instead of a Chapter 7. Chapter 13 often results
in the repayment of debts. Creditors will know you are paying a
greater percentage of your debt than you might in Chapter 7,
although they have no legal duty to give any consideration on this
information, consult attorney Walter Metzen toll free at 888-4WALTER
Chapter 13 vs.
private debt consolidation?
Chapter 13 allows
people who have steady incomes to pay all or a portion of their
debts. In this type of debt consolidation case, the person who files
must submit to the court a plan for the repayment of all or a
portion of his or her debts. The plan must be approved by the court
to become effective.
private debt consolidation usually involves small loan companies
that offer debt counseling through the use of high-interest "bill
payer" or "debt consolidation" loans. There are also "financial
counselors" who charge large fees.
Chapter 13 may be
the best, or only solution for extreme financial hardship. However,
it should be used as a last resort, since it can have long lasting
consequences in relation to your credit.
On the other hand,
private debt consolidation is seldom the recommended solution under
any circumstances. A much smarter approach would be a nonprofit
credit counseling service. They will contact your creditors and
negotiate longer, smaller, and more manageable payment programs. For
more information on Chapter 13 versus private debt consolidation,
contact the credit counseling service of your city.
Chapter 13 Bankruptcy Frequently Asked Questions
What is Chapter 13?
Chapter 13 is a
chapter of the Bankruptcy Code that is structured for wages earners
or small businesses. It enables debtors to immediately stop all debt
collection activities (wage attachments, mortgage foreclosures,
lawsuits, telephone calls, letters, bank setoffs). While this
collection activity is stayed, your attorney proposes a plan of
repayment and you begin pay on it. The plan may in most
circumstances, propose payments in an amount less than 100% of your
debts. Many debtors repay 10%, and some even pay less. The plan
usually continues for three years, but in no event may it exceed
five years. When the court confirms the plan, it becomes binding on
your creditors. After you complete payments under the plan, the
court cancels the balance of your debt. Chapter 13 is used
frequently to stop mortgage foreclosures and can save your home;
even at the last moment.
is the "automatic stay"?
The automatic stay
is an automatic injunction against most continued collection
activities. The automatic stay goes into effect as soon as your
bankruptcy case is filed with the bankruptcy court. The automatic
stay is important because it protects you from all collection
activities. The automatic stay applies to virtually everyone and
stops all activities that are calculated to collect money from you,
or make it uncomfortable or embarrassing on you so that you want to
pay. It stops everyone except for criminal courts demanding fines or
restitution. It does not get you out of child support. It does not
get you out of spousal support. It does not stop you for being
arrested for not paying a fine. It does not give you criminal
immunity. The automatic stay is "automatic". The court issues it
just because you filed bankruptcy. You do not have to prove anything
to get it.
can file a
Code says that any individual with a regular income, i.e. a person
with a stable income regular enough to allow him or her to make
payments under a chapter 13 plan, can file a chapter 13 case. You do
not need to have a job to file. You need only to have some source of
regular income. You may not file a chapter 13 if a creditor has
requested relief from the automatic stay in a prior bankruptcy that
you filed, and you voluntarily dismissed the case. This bar
continues for 180 days from the date you dismissed your case. You
may also be barred from filing for the 180 day period if your case
was dismissed for willful failure to abide by orders of the court,
or to appear before the court in proper prosecution of his case.
there a limit on how much I can owe?
Yes. You cannot
file a chapter 13 if you owe more than $269,250 in unsecured debts
(e.g. credit cards, signature loans, other non-collateralized
liability) and $807,750 in secured (mortgages, new car loans, etc.)
notifies the creditors that I have filed?
The court notifies
the creditors. It usually takes about two to three weeks. Some
creditors may not "notice" that you have filed due to their size.
They may continue to call you and send bills after you have filed.
This may be because the address you give to your attorney may be
just a billing service. Many creditors use these billing services
instead of doing it themselves. There may be incompetent people
working for the services. It is therefore important that you list
the address given for reporting billing errors and not the payment
address. The "errors" address usually goes to more competent people,
since they need to know how to comply with federal law on billing
a Chapter 13 save my home from foreclosure?
Yes, in most
cases. One of the main purposes of a Chapter 13 is to enable a
homeowner to cure the default owed to a mortgage company. In other
words, to reinstate a mortgage to its pre-default status. This is
done through payment of a Chapter 13 "plan." Under this plan, the
debtor makes payments to a trustee usually over a 36 - 60 month
period, which sum includes sufficient funds to reinstate the loan to
current status. During this time period, the mortgage company cannot
sell your home or in any way continue with the foreclosure process.
If the mortgage company has not posted your home for foreclosure
before you file your bankruptcy case, then the mortgage company
cannot post your home for foreclosure after you file. However, you
must make your regular mortgage payments while your Chapter 13 case
is pending. If you fail to make your regular mortgage payments, the
mortgage company can request that the Court modify the automatic
stay to allow the mortgage company to foreclose on your home.
a Chapter 13 get my repossessed car back?
In many cases, the
answer is also yes. However, if the car has been sold, or if you
simply wait too long after repossession, it may be difficult or
impossible to recover the vehicle. You must check with your attorney
at the time you file for a more definitive answer. Most vehicle loan
companies will return a car voluntarily after you file a chapter 13
(provided the car is not sold) if you show adequate insurance. This
insurance usually must include collision and name the finance
company as a loss payee, meaning the policy must specifically
mention the loan company as the person/company which gets paid first
in the event of a loss.
Chapter 13 get my house back after a foreclosure sale?
This is a good
reason why one should not to wait until the last minute to file. The
short answer is "almost never." The long answer is "sometimes."
Generally once your house is sold at a foreclosure sale, there is no
sense filing a chapter 13 to try to save it. The filing of a case
will not, in and of itself, set aside or vacate a foreclosure sale
held in a regular manner in accordance with the law. Sometimes, and
this is rare, the state court may set aside the foreclosure sale if
the sale was conducted in an illegal manner, or without proper
notice. It is usually very difficult to get a court to set aside the
sale. Therefore, once the "hammer falls," you had better start
looking for another place to live.
have to maintain insurance on my home during the Chapter 13?
Yes. If you fail
to maintain insurance on your home during your chapter 13 case, the
chapter 13 trustee who will move to dismiss your case (throw it out
of court) for refusing to protect the rights of your mortgage
company and your other creditors. A destroyed home makes lousy
collateral for a mortgage, puts the debtor out on the street and
generally has a negative impact on future chapter 13 plan payments.
You must have and maintain a current and valid fire insurance policy
on all real estate to stay in bankruptcy.
much will I have to pay in a Chapter 13 plan?
That depends upon
several factors including, but not limited to, the amount of the
arrearage on any secured debts such as your mortgage or car loan,
whether you owe back taxes, the amount of your income, and the
amount of your reasonable monthly expenses. Plans may not exceed 60
months. Some creditors may include interest over the life of the
plan. This may also increase the amount you are paying. Interest
over the life of the plan is sometimes allowed if there is
sufficient equity in the property (i.e. the amount you would realize
after final sale). Don't have any secured debts? If you are not
curing mortgage or vehicle payment arrears, then your payment is
governed by several rules: The payment must be the debtor's "best
effort," that is, all of the debtor's projected disposable income
that is earned in the three-year period will be applied to make
payments under the plan. "Disposable income" means income which is
received by the debtor and which is not reasonably necessary to be
expended for the maintenance or support of the debtor or a dependent
of the debtor; including a small charitable contribution not to
exceed 15% of the debtor's gross income.
not have a job. Can I file Chapter 13?
individual with a regular income can file a chapter 13. A regular
income can come from social security, SSI, SSDI, private disability
insurance, retirement income, government assistance (welfare), or
any source of regular and dependable income.
I use rent receipts as income to fund my plan?
Yes, if you are
receiving rent from any source, you can indeed use it to fund a
chapter 13 plan.
if my mortgage company or other creditor overcharges me? Do I have
to accept what they say?
Just because you
filed a bankruptcy, your creditors, and even and especially, your
mortgage and car finance companies do not have the right to double
charge, overcharge or charge without a reasonable explanation an sum
amount in their proof of claim. A "proof of claim" is the document
filed by a creditor stating what they believe you owe. It is not
infallible. As a matter of fact, it is very often wrong.
Fortunately, there is a way to handle any objection to any amount
claimed from the debtor in bankruptcy. It is called an Objection to
Proof of Claim and it can be filed for any claim.
Should I seek credit counseling before bankruptcy?
At present, there
is no requirement to do so. Credit counseling may be a good idea to
avoid bankruptcy, however, keep in mind certain things. Most credit
counselors get paid by a percentage of what is paid to the
creditors, by the creditors receiving the funds. this means that
they have an interest in seeing that the creditors get the maximum.
Credit counselors, therefore, do not have a "confidential
relationship" with you. A confidential relationship is the type of
relationship you have with an attorney. The attorney is legally
obligated to avoid conflicts and represent only your interests. An
attorney could be disciplined or disbarred from accepting payments
from adverse parties, such as your creditors. Statements made to
attorneys are always confidential, if made in private (between you,
your spouse and the attorney, with no one else present). Statements
made to a counselor are not. Credit counseling can be good for some
people. It helps many people avoid bankruptcy, however, it is an
open question whether is makes much of a difference on your credit
record. The new bankruptcy law may require counseling, however, for
now, there is no reason to follow the mandates of a statute that may
never be passed, unless you want to for your own reasons.
circumstances, credit counseling is a very wrong answer. These
include many of the reasons that people file chapter 13 in the first
You should not
seek credit counseling first (you should seek legal counsel) if
your home or other real estate is in foreclosure.
You should not
seek credit counseling if you have been sued in court.
There may be
other reasons. If you have a question, it is always better to
speak with an attorney first. Credit counselors simply cannot
give legal advice you can rely upon, like an attorney can.
should I consider filing a Chapter 13?
consider filing a chapter 13 if:
Your house is
being foreclosed upon.
received a notice from your mortgage company that they intend
foreclosure at any time in the future.
You need some
time to catch your breath, so that you can regain control of
your life from your creditors.
You are in
severe financial difficulty and have tried, but cannot work
other arrangements with your creditors.
property (real or personal) that you need to protect and are in
danger of losing to a creditor.
committed a wrongful act respecting the debts
(misrepresentation, fraud, etc.) and you feel that a creditor
would object to your discharge in a chapter 7.
income to pay less than 100% of the debts you owe and would like
to make (in most cases) interest-free payments to unsecured
You have an
honest desire to not "run away from" your creditors, but are not
in a financial position to pay all the debt, or all the debt and
all the interest on that debt.
You should be
aware that payments to mortgage creditors generally cannot be
reduced or modified.
can I pay for an attorney if I am "bankrupt?
There are a number
of different manners of payment. One should consider that he will
not be paying a significant portion of his indebtedness so that in
itself, may free up funds for counsel fees. Sometimes, some of the
fee may be paid through the chapter 13 plan without interest. You
will then have up to five years to pay! This will increase your plan
payments only marginally. Many people still would want to pay prior
to filing because the total fee would be less.
can I stop creditors harassing you or your family?
Filing a Chapter
13 acts as a stay (which means an Order of the court preventing
this) of ALL creditor activity, including all collection action.
This includes, suits, phone calls, letters, "friendly reminders" of
indebtedness or visits from bill collectors. This includes legal
papers, of course. Please note that it is the Bankruptcy Court that
notifies your creditor. Therefore, just because you have filed
bankruptcy, it does not mean that all your creditors will know
immediately. It may take a few weeks for them to learn of the filing
through the court. If a particular creditor is getting on your
nerves, let me know and I will contact them. The harassment should
then cease. If it does not, you may have the right to bring legal
action against them.
if I owe the electric company, will they shut off my power?
Code prohibits your local power, water, telephone, or any utility
company from discriminating against you because you have filed a
bankruptcy. It cannot shut off your power, water or phone service or
refuse you any utility service just because you filed. You should be
aware that your local utility company may request a deposit from you
for continued service.
about my credit record?
will hurt your ability to obtain credit for some time to come. That
you have filed a chapter 13 will appear on your credit record for
ten years. In some circumstances, i.e. credit transactions in excess
of $50,000, the credit record can reach back even further.
Generally, the best (and probably the only) way to get good credit
is to pay your bills, or at least the minimum amount due, when they
become due. A chapter 13 will be listed on your credit record as
just that; a chapter 13 bankruptcy. Your creditors may also be able
to see if you completed your plan successfully, which is certainly
to your advantage. Some people may be fortunate enough to find a
creditor willing to overlook their bankruptcy. This may or may not
be you; the question is left entirely up to the individual creditor.
By the way, the bankruptcy trustee will require you to cut your
credit cards in half and return them to the creditors. YOU MAY NOT
CONTRACT FOR CREDIT WHILE THIS CASE IS PENDING!
a bad check to a creditor. Can that be discharged in a chapter 13?
Issuing a bad
check is a crime in most states. The bankruptcy will not protect you
from criminal prosecution and will not discharge criminal liability
for restitution, costs or fines. In addition, you can be arrested,
notwithstanding the bankruptcy. It is strongly recommended that you
satisfy all bad checks before you file.
exactly is expected of me in a Chapter 13 case?
The following are
among the most important obligations you have in a chapter 13 case:
Be truthful to
all authorities involved, including your attorney. Lying in a
bankruptcy proceeding is a federal crime and is punishable as
such. It is often the case that a debtor can accomplish better
results by truthfully disclosing unfavorable facts than by lying
Pay the plan
faithfully. I will tell you the amount of your plan payments. If
you miss two consecutive payments, your case is subject to
dismissal. You may wish to request a wage attachment. If you do,
the payments will come directly from your pay and you will not
have to worry about payments, as long as your employer is making
them. Of course, if your employer stops making payments for any
reason, it is your responsibility to continue them. By the way,
your first plan payment will be due the first full month after
you file your bankruptcy. Retain your money order receipts as
proof of payment.
when directed to do so. Your court appearances will be minimal.
Most debtors only appear one time, at what is called a "section
341" Meeting of the Creditors. At that meeting, the creditors
are allowed to attend and ask questions, although it is rare
that they actually do.
these are the items that you will need to bring to a meeting of
your income (pay check stubs, etc.).
income from rent (leases or other agreements to pay you).
insurance for all vehicles and for your home (fire insurance
or proof that the same is being paid through your mortgage
your most recent tax returns and any other items requested
by the trustee.
5. PAY YOUR
MORTGAGE! You may have been told of this obligation, but it cannot
be stressed enough. Current monthly mortgage payments must be
maintained. Payments must commence the month after filing your case.
Pay the regular monthly amount to your mortgage company unless you
are instructed to do otherwise. Should payments be refused by your
mortgage company, report this fact to me at once. You are never
excused from making current monthly mortgage payments. Your failure
to comply with this requirement will eventually cost you your home.
Be sure to retain your canceled checks as proof of payment. It is
usually a good idea to enclose a copy of your bankruptcy petition
with your first check to your mortgage company as proof of the
filing of this case. They will need to know that you are in a
chapter 13 case in order to begin accepting payments again. If you
do not pay your mortgage payments (post-petition) and the mortgage
company gets relief from the stay (is allowed to proceed with or
commence a foreclosure), you are not allowed to just dismiss your
case and start over. If you dismiss your case after a motion for
stay relief is filed, then you must wait 180 days to refile. If the
trustee dismisses your case, then the 180 day period is not
applicable. Therefore, it is sometimes better to consider dismissing
your case yourself if you get behind in your mortgage. There is no
way to know exactly when a motion for stay relief will be filed by
the mortgage company. It is best to stay current.
6. Obey all orders
of the Bankruptcy Court.
7. Pay your car
payment! If you fail to keep this current, your car is subject to
repossession after relief from the stay is obtained. You must also
keep your car fully insured.
are the chances of my bankruptcy "not being accepted?"
For some reason,
many clients are under the impression that "their bankruptcy has to
be accepted." The truth is that once the case is filed, it is
"accepted" by the court and the debtor receives relief from all debt
collection activities, including, but in no way limited to:
stay of any litigation, excepting criminal and child support
(also certain family matters);
water, telephone or other utilities being shut off;
Most types of
While it is true
that your plan must be confirmed (i.e. made binding upon the rights
of your creditors) by the court, your creditors do not have to
accept the plan if:
It is your
for a payment to unsecured creditors in an amount at least as
much as they would receive if you had filed a Chapter 7
that secured creditors will retain their liens; and
complies with the minimum requirements for a chapter 13 plan
under the law;
Of course, the
statements above are simplified for the lay person's understanding.
This is not to say that there may be other issues for the attorney
if I want to sell my home (or real estate), and I have already filed
a Chapter 13?
debtor(s) in a chapter 13 case realize that the best way out of
their problems is to liquidate (sell) their home or other real
property owned by them at the time of filing. Many times the
debtor(s) do not realize that all real estate owned at the time of
the filing is subject to the jurisdiction of the court. Some courts
in certain jurisdictions feel that, or allow plans that, revest
complete ownership of the property when the plan is confirmed. Most
of the time, however, the debtor(s) need to get permission of the
court to sell their property.
After a sale, most
times the trustee will take control of the proceeds after the liens
are paid. The realtor and attorney(s) will need to get court
approval of their fees in order to get paid from the sale. Realtors
need to be appointed first in many if not all jurisdictions. The
realtor, therefore, cannot just appear at the settlement or closing
of title and ask that the title clerk or closing attorney withhold
his fee. Furthermore, all sales prices are subject to approval of
the court. If the court feels that the sales price is inadequate,
then the court will disapprove the sale. If the court disapproves
the sale and the sale takes place anyway, then the purchaser may not
have valid title (thus creating a major headache for the purchaser
and his title company).
In summary, when
you sell real estate in a chapter 13, your creditors may get paid
before you do. This depends greatly on the exemptions you and your
counsel claim when you file.
lost my job or cannot make my plan payments for another reason. What
can I do?
If you are paying
for arrears on your mortgage as a result of a foreclosure or
threatened foreclosure, or for any reason, then your plan may
already be at a minimum and may not be able to be reduced. If your
plan calls for a certain percentage to unsecured creditors (e.g.
credit cards, etc.), which percentage was based upon a wage figure
that you can no longer support, then the plan can be reduced
accordingly, as long as you provide for full payment for your
mortgage arrears and any other arrears (e.g. vehicle payment
arrears) that you need to pay.
If your plan has
no secured creditors, then you can modify the plan to reduce it to
any reasonable level that the court will approve. Often, you
attorney will need to file a motion to have the new plan approved.
just got some extra money. Can I pay off my chapter 13 plan early?
The answer is yes,
if you are willing to pay your creditors 100%. Most courts will
require a debtor to be in a chapter 13 at least for 36 months. The
reasoning is that if the debtor has the money to prepay the plan, he
maybe really did not need a break anyway. The debtor will be
expected to continue to make his or her plan payments for at least
the balance of the plan or a minimum of 36 months. The plan is not a
loan that can be "prepaid."
happens when I complete my Chapter 13 obligations?
After you have
completed payments under the plan, and if no objections to discharge
are filed, you will be receiving your discharge in bankruptcy. You
are not be required to appear in court to get your discharge order.
The discharge, as you know, "cancels" certain debts that you had at
the time the bankruptcy was filed. It does not affect the lien of
secured claims, however, it will cancel the personal liability only,
on those debts. This means that if you owe money on the secured debt
after you receive the chapter 13 discharge, your collateral is still
subject to repossession, unless you remain current with that
If no objections
to discharge are filed, you can expect to receive an order, signed
by the Judge, in the mail after your completion of the plan. When
you receive the discharge order, you should put it in a safe place
with your other valuable and important papers because you may have
to show it to creditors later.
is the effect of a bankruptcy discharge?
understand several things about your bankruptcy discharge:
LISTED ON YOUR BANKRUPTCY SCHEDULES can be discharged. If you
have a debt that you owed at the time that the bankruptcy was
filed, but do not have it listed, it will not be discharged. If
you have such a debt, speak with me immediately and I will file
amendments to the schedules and amend the plan, if required.
OWED FROM THE PERIOD BEFORE THE BANKRUPTCY WAS FILED WILL BE
DISCHARGED. This bankruptcy discharge will not discharge debts
that you became obligated to pay during the bankruptcy. Your
discharge will only cover your personal obligation to pay debts.
It will not cover co-signers on your debts and it will have no
effect on most security interests, like home mortgages and
encumbrances on motor vehicles.
If you want to
REAFFIRM A DEBT, AVOID A LIEN, OR REDEEM PROPERTY, you must do
so BEFORE THE CONFIRMATION ORDER IS SIGNED. Therefore, you
should tell me now if you want to do this. An explanation is in
liens (judgments, levies, non-purchase-money interests in
household goods) can be eliminated entirely by asking the
court to do so. There is an additional fee for this service.
If you are interested in this service, let me know and I
will quote a fee.
liens, like mortgages, motor vehicle encumbrances, and
purchase money security in other goods cannot be eliminated.
think that any of these agreements or motions should be
filed in your case, or if you want additional information,
can pay anybody you want after your discharge however, few
debtors do. Depending on the length of your plan, you may not
receive a discharge for 3 to 5 years.
code prohibits the discharge of certain types of debts. Upon
your request, I can describe to you in detail the types of debts
that cannot be discharged. These debts include, but are not
limited to: educational loans that first became due less than
seven years ago, child support, certain taxes, including income
taxes less than three years old. Furthermore, your taxes may not
be dischargeable even if they are more than three years old in
certain circumstances. These are, but are not limited to the
following: (i) If you did not file a return, or (ii) if you did
not file a return on time. In many instances, income taxes over
three years old may be DISCHARGEABLE, however, to be sure, you
must review your specific case with me.
important that you know the significance of your discharge
order. If a debt is discharged, that creditor cannot force you
to pay that particular debt. This means that the creditors
cannot legally file an action against you (for that debt),
continue an action that it had filed before the bankruptcy, send
you collection letters or harass you in any other way. If this
type of harassment occurs, you should contact me immediately,
and I may be able to sue the creditor.
information sheet is intended only as a summary of certain
points of interest regarding your bankruptcy discharge. The
terms used in this information sheet are intended to be simple
so that they can be understood, the law is much more detailed.
This information therefore is not "the law" and is only a
summary designed to help you understand this phase of your
Each bankruptcy is
unique. Your case may have special facts making further discussion
necessary. Do not be afraid to raise any issue if you feel uneasy
about it. I will be pleased to answer any question you may have.
if I forgot to list a creditor?
It is usually not
a problem if it is caught before the confirmation hearing. This can
be done even after the plan's confirmation. There is a Bankruptcy
Court fee of $20. Your attorney may also charge a small additional
fees for the service.
can I hire you as my attorney to file a Chapter 13?
Please call me at
313-962-4656 or 888-4WALTER to request an appointment or send me an
firstname.lastname@example.org. Fees are dependent upon the
complexity of the individual case. Most fees are standardized,
however expedited or complex matters may be charged accordingly.
is Chapter 7 Bankruptcy?
7also called "straight" or "liquidation" bankruptcy, is a way to
legally discharge which is a legal term meaning wipe out or cancel
your debts. When a person or married couple file a Chapter 7
bankruptcy, they are basically seeking a fresh start financially.
Most of my clients complain that creditors and collection agencies
are calling them at home and at work, utility companies have shut
them off or are threatening to do so, or perhaps their wages are
being garnished. Filing a Chapter 7 bankruptcy can stop all of
these dead in there tracks. Basically filing a Chapter 7 is
accomplished by filing papers with the United States Bankruptcy
Court asking for protection. As soon as your case is filed (stamped
with the date and time) an Order for relief is entered. The Order
for relief creates the "automatic stay" described in more detail
below. Most people who file a Chapter 7 are seeking to wipe out
debts like credit cards, medical bills, utility bills, bank and
credit union loans, car loans for which the car was repossessed, in
an accident with no insurance or just broke down before it was paid
off. A Chapter 7 discharge will wipe out or extinguish all of these
debts. Chapter 7 involves an exchange between the person filing and
the US Trustee, whose job it is to gather any non-exempt property of
the debtor for the benefit of creditors. The person filing the
Chapter 7 in exchange for getting all of their dischargeable debts
wiped out, must disclose all of their assets (things and rights they
own) to the Trustee. In the vast majority of Chapter 7 cases that
are filed, nothing is taken and sold by the Trustee, most cases are
no asset cases. Remember, Chapter 7 is designed to leave you with a
fresh start. This means that the law is very generous in what you
are allowed to keep or claim exempt. The most important thing is to
list or disclose everything you own in your bankruptcy petition.
Most, but not all debts are dischargeable in Chapter 7 bankruptcy.
Chapter 7 gives you a fresh start on your economic life within
certain limitations. A person cannot file a Chapter 7 more than once
every 6 years and certain types of debts are not dischargeable.
Student loans, most taxes, alimony and child support and debts for
death or personal injury caused as a result of drunk driving or
other intoxication are not dischargeable as a matter of public
policy. Also, some people may have used credit in a fraudulent
manner. For example, Chapter 7 bankruptcy is not for people who run
up their credit cards with the intent of shortly thereafter going
into bankruptcy. Chapter 7 bankruptcy is also not for people who
charge much more than they could ever afford to pay just to
discharge those debts. Moreover, it is not for anyone who basically
acts in a dishonest or fraudulent manner. It is for the honest
debtors, who, for circumstances they cannot control, find themselves
overwhelmed in debt. Chapter 7 is also generally not appropriate for
someone trying to save his house from a mortgage foreclosure.
Generally, if you are about to lose your home for any reason, a
Chapter 13 should be filed. Further, Chapter 7 is not for someone
with the ability to make some reasonable payment on a month basis to
unsecured creditors. For instance, if your budget would allow you to
pay even ten cents on a dollar to creditors, you should generally
file a Chapter 13 instead. See attorney Walter Metzen for a
professional analysis of your financial situation and a thorough
discussion of which Chapter may be best for you.
is the "automatic stay"?
AUTOMATIC STAY IS THE COURT ORDER THAT STOPS CREDITORS IMMEDIATELY,
even if they don't yet know you filed bankruptcy. The automatic stay
is one of the most powerful tools you as the debtor get when you
file your bankruptcy petition. It happens automatically upon the
filing of your case either Chapter 7 or Chapter 13. It is so
powerful that it can stop a foreclosure, a car repossession a
utility shut-off and even a wage garnishment. I have even had the
repo man return a car that he took from my client because a
bankruptcy had been filed even though the repo man did not know.
Most creditors who are regularly in the business of lending money
know and respect the power of the automatic stay in bankruptcy and
will abide by the law. The automatic stay is an automatic injunction
against most continued collection activities. The automatic stay
goes into effect as soon as your bankruptcy case is filed with the
bankruptcy court. The automatic stay is important because it
protects you from continued harassment from your creditors. The
automatic stay applies to virtually everyone and stops virtually all
activities that are calculated to collect money from you, or make it
uncomfortable or embarrassing on you so that you want to pay. It
stops everyone except for criminal courts demanding fines or
restitution. It does not get you out of paying child support. It
does not get you out of spousal support. It does not stop you for
being arrested for not paying a fine. It does not give you criminal
immunity. The automatic stay is "automatic". The automatic stay goes
into effect immediately upon the filing of your bankruptcy
Should I seek credit counseling before bankruptcy?
Many of my clients
have tried credit counseling before coming to see my to file a
bankruptcy. Credit counseling agencies which advertise heavily on
television and call themselves non-profit agencies. Credit
counseling agencies have no "real power" to deal with your
creditors. Most actually get paid a percentage of the money that you
pay your creditors through the agency. Most charge a start-up fee
and a monthly maintenance fee which over the long run can add up
significantly. Most people in credit counseling eventually do need
to file a bankruptcy to deal with their creditors so the credit
counseling was in vain. Some credit counseling agencies request
access be given to a persons checking account so that the collection
agency can take money out of the account every month or every pay
period. I strongly discourage giving anyone such access to a bank
account, I have seen many problems result from giving such access,
such as bounced checks and inability of the debtor to make other
necessary payments due to a disruption in their income. Credit
counseling may be a good idea to avoid bankruptcy, however, keep in
mind certain things. Most credit counselors get paid by a percentage
of what is paid to the creditors, by the creditors receiving the
funds. this means that they have an interest in seeing that the
creditors get the maximum. Credit counselors, therefore, do not have
a "confidential relationship" with you. A confidential relationship
is the type of relationship you have with an attorney. The attorney
is legally obligated to avoid conflicts and represent only your
interests. An attorney could be disciplined or disbarred from
accepting payments from adverse parties, such as your creditors.
Statements made to attorneys are always confidential, if made in
private (between you, your spouse and the attorney, with no one else
present). Statements made to a counselor are not. Does this mean
that credit counseling is always a bad idea? No, credit counseling
can be good for some people. It helps many people avoid bankruptcy,
however, it is an open question whether is makes much of a
difference on your credit record.
circumstances, credit counseling is a very wrong answer. These
include many of the reasons that people file chapter 13 in the first
You should not
seek credit counseling first (you should seek legal counsel) if
your home or other real estate is in foreclosure.
You should not
seek credit counseling if you have been sued in court.
There may be
other reasons. If you have a question, it is always better to
speak with an attorney first. Credit counselors simply cannot
give legal advice you can rely upon, like an attorney can.
a lot of money to DTE Energy or SBC Ameritech, will they shut off my
utilities if I file a bankruptcy?
No, a utility may
not deny you service because you exercised your constitutional
privilege to file a bankruptcy petition seeking relief from your
creditors. In fact, I have filed many cases for individuals or
couples for the only reason that they have huge utility bills and
shut-off. The filing
of a Chapter 7 will wipe-out all the past debt owed to the utility
and the company has to start you fresh as if you just moved to
Detroit from Timbuktu. The utility companies by law cannot deny you
service simply because you filed bankruptcy. The law recognizes
them as a public monopoly because you can't simply go to Meijer's
and buy electricity or natural gas for your home. The way it works
is this: You file your bankruptcy petition, being sure to list
whichever utility company you owe on your list of creditors
(schedule F and Matrix). Approximately 10 days to 2 weeks later,
the Bankruptcy Court mails out notices to all of the creditors you
listed in your case. All of the utility companies regularly get
bankruptcy notice and most even have a bankruptcy department. The
company looks up all the accounts in your name, sometimes using a
combination of your name and social security number. Any and all
accounts in your name are then wiped out and started fresh back to
the date your petition was filed.
Note: You are responsible for paying the new utility debts you incur
after filing your bankruptcy (either Chapter 7 or 13).
If your utilities were cut off prior to your filing bankruptcy, tell
my office and a fax will be sent to the utility company with proof
of your filing and instructions asking them to restore service.
They will always restore the service unless it was turned on
illegally (which is fraud and may not be dischargeable) or it turns
out that the utility service was in some other person's name (who
did not file bankruptcy). Your utility company may not discriminate
against you because you have filed a bankruptcy case. This means
they must continue supplying you with service and may not cut you
off. Please note that your utility company will probably request a
deposit from you for continued service. The deposit remains your
money, but is held by the utility company as security for service.
The deposit is usually equal to approximately twice your average
monthly bill. If you owe no money to your utility company and do not
list them as a debt, then utility companies may waive the
requirement for a deposit. Note: Some services such as cable tv,
internet or cell phone services are not considered utilities since
you can go to another service provider (i.e. they are not a
monopoly) or they are not considered essential utilities (yet).
quickly can I or we (joint husband and wife cases) file a Chapter 7
depending on your situation. I have literally filed a bankruptcy
case within the same hour that the person came to see me. This was
an emergency situation to prevent the foreclosure of the person's
home. Filing the bankruptcy before the sheriff's sale was concluded
stopped the sale and gave the debtor a breathing spell. Usually
depending on your situation and the difficulty of your case, I
prepare your case and file it within a matter of a few weeks of your
initial consultation. In cases where a person's wages are being
garnished, I will file the case the same week. How quickly the case
gets filed also depends on you. All documents required must be
supplied to my office and all Court and attorney fees required must
be paid before the filing. My office generally files cases every
week. If your case requires an urgent filing, please come see me in
my office to make arrangements to get your automatic stay in place
as soon as possible.
married and want to file alone. How will my filing Bankruptcy affect
There is no
requirement to file jointly if you are married. Many of my cases
are filed for only one spouse of the married couple. If you are
married and need to file by yourself the other spouse's credit
report is usually not affected, because it is separate and distinct
from yours, especially if there are no joint creditors. If both
husband and wife are joint on a debt (such as a credit card or
medical bill), I would normally recommend a joint bankruptcy
much debt do I need to be in to file a Chapter 7 Bankruptcy?
There is no
minimum debt requirement in order to be able to file a Chapter 7.
The analysis of whether to file a Chapter 7 depends more on your
present ability to repay your creditors. Other factors to consider
are the level of creditor harassment (i.e. calling you at home and
work), utility shut offs, wage garnishments or other creditor
actions. I usually don't recommend a Chapter 7 Bankruptcy for any
individual unless there is at least $5000 in debt to wipe out or
discharge, making the filing worthwhile. However, I have filed
Chapter 7 cases for individuals with less debt but were being
garnished by one or more creditors and made only minimum wage
therefore making it impossible to file a Chapter 13 repayment plan.
I have also filed cases for people whose utilities were shut off and
needed the Bankruptcy Court protection of the automatic stay to get
turned back on.
have to file Bankruptcy on all of my Credit Cards? What if I want to
Yes, if you owe a
balance, list the debt. The law requires you to list all of your
creditors on your bankruptcy petition. I tell my clients that even
if they owe the local video store $3.79 for an overdue video, to
list it on your bankruptcy schedules. Many of my clients are
worried that they cannot live without their Mastercard. Trust me,
life is possible without credit cards. If you truly must have a
credit card, there are options. If you have a credit card with a
zero balance, it does not have to be listed and you may use it after
you file bankruptcy. If you have a credit card with a low balance,
you may wish to pay it off before filing your case. Some creditors,
particularly Sears, offer to cut your current balance to $500, even
if you owe them $10,000 or more, if you reaffirm (sign an agreement
that says you promise to pay them despite the bankruptcy) with them.
Many of my clients are reporting to me that they are receiving
pre-approved credit card applications shortly after filing their
Chapter 7 case. These are solicitations from credit card companies,
even some of the same that were just discharged, enticing you to get
back into the game. If used wisely and frugally (i.e. paying the
balance in full each month), these may help you re-establish your
credit. Remember though, in many cases, overspending and overuse of
credit cards are what often lead to the bankruptcy in the first
place. Be careful!
Where does my Chapter 7 Bankruptcy case get filed?
If you live in the
Metro Detroit Area it will be filed in the US Bankruptcy Court for
the Eastern District of Michigan, Southern Division located at 211
West Ford, Downtown Detroit. Remember, bankruptcy law is a federal
law and is therefore assigned to the Federal District Courts. The
Bankruptcy Courts are a subset of the Federal District Courts and
hear all cases assigned to them. All cases filed in Wayne, Oakland,
Macomb, Monroe, St. Clair and Washtenaw Counties must all be filed
in the Detroit Bankruptcy Court. If you live in the Flint or Bay
City area, your case may be filed in there own jurisdiction.
happens after my case is filed with the Bankruptcy Court in Detroit?
After your case is
filed, the Court clerk usually mails out the "Notice of Commencement
of Chapter 7 Bankruptcy" to you, your attorney, the Trustee assigned
to your case and most importantly, all of your creditors. This is
why it is important to try your best to list all of your creditors
in your bankruptcy. They need to have "Notice" that you filed. The
Notice of Commencement contains information about you such as your
name, address and social security number so that the creditors can
enter the fact that you filed a bankruptcy in your system and end
collection activities. The notice contains instructions and
explanations regarding the automatic stay and penalties for
violating the stay (i.e. trying to collect a debt from you). The
notice also tells you when and where your Meeting of Creditors will
take place. This is your Court date and you must attend it
otherwise your case will be dismissed. I as your attorney am also
required to attend your "meeting of creditors." This "meeting" is
actually not much of a meeting at all. You (and your spouse if this
is a joint filing) must attend. I will be there because I include
this in your fee, and the Interim Trustee will be there. The trustee
is an attorney who is appointed to ask you questions about your
case, which you will be required to answer under oath. The trustee
then reports to the bankruptcy judge as to whether he recommends a
discharge. All this may sound scary, but it is actually a brief and
routine procedure. Most people are amazed at how easy it is. You
will learn more of this later in the case. Naturally, your creditors
may attend the meeting, but they rarely do. Once the meeting of
creditors is concluded, the trustee will make his report to the
court and will usually recommend a discharge. After the trustee
makes his recommendation, the court will enter a "discharge" within
about three months. The reason you will not be granted a discharge
immediately, is that the creditors are given some time to object to
your discharge (approximately 60 days after your .341 meeting of
creditors unless an extension is granted), or to make application to
the Court why their particular debt should not be discharged. See
Documents" link for a list of what you need to bring to this
Court hearing with you.
about my credit report, how will it look after filing Chapter 7
My friends tell me
that I won't get credit for seven years after I file, is this true?
I get this one all the time. First of all, understand that there is
no law that says a future creditor or some other lender cannot give
you credit after you file bankruptcy. In fact, these days with well
over 1 million personal bankruptcies being filed every year, there
is an entire credit industry that has evolved that solicits actively
to individuals and couples who have recently filed a case. My
clients call me all the time just a few months after their
bankruptcy and want to know what is going on, why are they getting
all of these pre-approved credit card applications in the mail and
how come all these finance companies want to sell them a car? Well
the short answer is that these potential creditors want to be first
in line to be your new credit cards after your fresh start. They no
that most people will only file one bankruptcy in their life. That
if the original bankruptcy was filed just because of bad financial
planning (i.e. not loss of job, disability, divorce etc.) that the
debtor probably has learned something from the experience and will
be more careful with the way they use credit in the future. Finally,
the creditor knows that you may not file another Chapter7 bankruptcy
seeking the discharge of new debt for a period of six years. There
is no question that a bankruptcy will hurt your ability to get
credit in the future. But by the time a person comes into my office,
their credit is already very bad. The benefits of the bankruptcy
discharge will greatly outweigh any negative impact on the credit
report in the vast majority of cases that are filed. The fact that
you filed a chapter 7 will appear on your credit record for ten
years. Generally, the best (and probably the only) way to get good
credit is to pay your bills on such terms as you originally agreed
when they become due, i.e., pay at least the minimum payment.
Bankruptcy, as you probably have figured out already does not pay
your bills, it only releases you from personal liability or
responsibility on them. In effect, the debt will still exist, but
your creditors will be legally stopped from collecting anything from
you, forever. Even if a year later you will $100 million in the
lottery. In other words, and for all intents and purposes, the
indebtedness is canceled. While the bankruptcy will be listed on
your credit record, you may be fortunate enough to find a creditor
willing to overlook this, but then again, you may not; this question
is entirely left up to the creditor. No one can be forced to give
you credit and you should not contract for credit while your
bankruptcy case is pending. Be careful with new credit card or other
credit offers, remember, credit card are what got you here in the
If you pay your post-bankruptcy
case bills after the case is closed, you may find some creditors
that are willing to give you credit -- possibly as soon as a year or
two after you get your discharge. When you use credit again, it is
in your best interests to use it with great restraint. In order to
reduce the risk that you will have to ask the court for relief
again, it is better to pay cash until you are very certain that
circumstances are substantially changed from the way they were when
you filed. Since you cannot ask the court for a Chapter 7 discharge
more than once every six years (Chapter 13 may still be available
though), you may put yourself and your family into jeopardy
unintentionally and unnecessarily.
business is ceasing operations, should it file for chapter 7
A corporation is entitled to no exemptions and receives no
discharge. Good reasons to file a corporate chapter 7 would
include: to stop a creditor from executing on valuable assets
that could otherwise be utilized to pay debts for which the
principals are liable (e.g. trust fund taxes or other personally
guaranteed debts); to recover preference payments that could be
used to pay debts for which the principals are liable; to
insulate the principals from allegations that the liquidation of
the corporation was handled improperly; the principals would
rather turnover liquidation of the corporation to a trustee
instead of handling it themselves. Good reasons for the
corporation to not file for bankruptcy might include the time
and expense of the bankruptcy and the scrutiny of past dealings
between the corporate insiders and the corporation. There is no
requirement that a insolvent corporation file for bankruptcy and
state law dissolutions or simply "shutting the doors" are common
Why would a debtor choose chapter 13 over chapter 7?
reasons include: the debtor owns nonexempt property that the
debtor would like to retain but could not in chapter 7; a debtor
is behind on car or house payments and needs to cure the
arrearages over time; a debtor seeks to "strip-down" the amount
of a secured debt to the value of the collateral (not available
as to first mortgages on a debtor's residence); the debtor has
received a prior bankruptcy discharge within 6 years; the
debtor has debts that are not dischargeable in chapter 7 (e.g.
certain taxes, fraud, defalcation of fiduciary duty, or willful
and malicious injury); a debtor is seeking to protect a
co-debtor; or a debtor likely has need of bankruptcy relief in
the future. In some cases, a debtor with a high income and an
ability to repay debts over a period of time, may be not be
permitted a discharge in chapter 7 and therefore chapter 13 will
be his only option.
How much do creditors receive in a chapter 13 plan?
must pay all his available disposable (after reasonable monthly
expenses) income to the plan for at least 36 months. The
creditors must receive at least as much money in chapter 13 as
they would have received in chapter 7 (also known as the
liquidation test). Secured creditors such as mortgage holders
are generally paid in full or caught current with the chapter 13
payments. Priority claims, which include attorney fees, certain
taxes and back alimony and child support, must be paid in full
under the plan. Different plans will pay the unsecured
creditors anywhere between 10% to 100% of their claim depending
on the liquidation test and the debtor's ability to pay. In the
Eastern District of Michigan, a plan typically will pay the
general unsecured creditors no less than 10 cents on the dollar.
The plan must be feasible in light of income and expenses and
must be proposed in good faith.
Are there limits to what a chapter 13 debtor can claim as a
Yes. In the
Detroit district, debtors must generally cease 401(k)
contributions as well as 401(k) loan repayments while in chapter
13. Expenses such as high car payments, jet-ski payments,
motorcycle payments, private school tuition, assistance to adult
children may not be allowed as these may be considered luxury
items by the Trustee and objected to unless you are offering
100% to your unsecured (credit card, medical bills, etc.) over
36 months. Charitable contributions (including tithes and
offerings) will generally be allowed if the debtor in fact makes
these contributions (the Trustee may wish to see proof such as a
letter from your Church, Temple or whatever charity you
Is it necessary to go to court when filing for bankruptcy?
typically, but all debtors must appear at the meeting of
creditors (also known as a "341 meeting") 20-40 days after their
petition is filed. While this is not a Bankruptcy Court hearing
(i.e. the Judge will not be there) it is a required proceeding
pursuant to the Bankruptcy Code-you must attend. Failure to
attend will result in the Trustee filing a motion to dismiss
your case. At the meeting, a trustee will ask the debtor about
their petition, schedules and Statement of Financial Affairs.
Such meetings are often routine and short. If the debtor has
retained an attorney, then the attorney will appear with the
debtor as legal counsel. Creditors may ask the debtor questions
at the meeting, but usually do not attend. The creditors
meetings in Detroit are held at 211 West Fort Street, Detroit MI
48226 in the basement, Suite B100. The building is on the
corner of Fort Street and Washington, Downtown.
What if a debtor has filed for bankruptcy previously?
A debtor may
not be eligible to file a petition if, within the preceding 180
days, he voluntarily dismissed a bankruptcy case after a Relief
from Stay motion was filed or if the debtor failed to appear in
a bankruptcy case. If a chapter 13 case was dismissed for
failure to make the monthly payments then it can generally be
re-filed without delay but it is generally helpful to show a
positive change of circumstances that has occurred since the
previous dismissal. No chapter 7 discharge will be granted
where a prior discharge was granted within the past 6 years.
Do spouses have to file for bankruptcy together?
may file jointly or individually. It is quite common for just
one spouse to file in order to preserve the credit standing of
the non-filing spouse, especially if the other spouse has OK
What effect does bankruptcy have on a co-debtor or co-signer?
co-debtor remains liable just as before (i.e. they are not
filing bankruptcy). However, a filing debtor may be able to
protect the non-filing co-debtor by filing a chapter 13. In any
event, a notation that the account was included in a bankruptcy
will likely appear on the co-debtors credit report which may
damage their credit standing. That is simply the risk one takes
when signing a contract with a co-signer.
Are there debts that bankruptcy will not dispose of?
chapter 13, some non-dischargeable debts include: (1) long-term
debt which by the terms of the underlying contract, is payable
at least in part after the last payment is due under the chapter
13 plan; (2) money owed for alimony, maintenance or support; (3)
most student loans; (4) debt for death or personal injury
arising from driving under the influence; (5) criminal fines and
chapter 7, non-dischargeable debts include: (1) money owed for
child support or alimony; (2) certain taxes; (3) some debts not
listed on certain bankruptcy petitions; (4) debts incurred
through fraud; (5) debts resulting from �willful and malicious�
harm; (6) defalcation of fiduciary duty; (7) student loans
unless the court decides that payment would be an undue
hardship; (8) mortgages and certain liens (such as on a car)
which are not paid in the bankruptcy case; (9) government fines,
forfeitures, and restitution; (10) debt arising from driving
under the influence; (11) debt incurred to pay a
non-dischargeable federal tax.
What if a debtor accidentally forget to schedule a creditor?
"no-asset" chapter 7 where the creditor alleges no fraud,
willful or malicious injury, or defalcation of fiduciary duty,
the debt is still discharged.
Can a chapter 7 debtor own anything after bankruptcy?
chapter 7 debtor may keep exempt property (property protected
from creditors) and property obtained after the bankruptcy is
filed. However, if a debtor receives an inheritance, a property
settlement, or life insurance benefits within 180 days after
filing, that money or property may have to be paid to the
creditors (through the trustee) if the property or money is not
exempt. You should immediately notify your attorney and the
Chapter 7 Trustee should this happen to you. Do not dispose of
any property you acquire via any of the above within the 6
months after filing.
What is equity?
determined by deducting the amount of a secured creditor's lien
from the fair market value of the asset. (e.g. a car that is
valued at $10,000 with a $9,000 lien against it, has $1,000 in
What if all of the debtor's assets are exempt?
This is a
common occurrence and is referred to as a "no-asset" case. This
means that the Trustee has not found any property that can be
sold to raise cash for the benefit of your creditors. Almost
all Chapter 7 cases are no-asset cases. I will do a thorough
analysis prior to filing and let you know the likelihood if your
case is an asset case.
What if a debtor wants to retain non-exempt assets?
A chapter 13
should be considered. However, it should be noted that even
though some assets may exceed the allowable exemption level, the
chapter 7 trustee may elect to abandon the asset back to the
debtor if the liquidation of the asset would yield an
insignificant amount of money. Also, chapter 7 debtors may be
afforded the opportunity to compensate the bankruptcy estate
(pay the Trustee the value with the Bankruptcy Courts approval)
for the un-exempt portion of an asset in order to avoid
Should a debtor sell non-exempt assets in order to purchase
exempt assets prior to a bankruptcy?
This is a form
of exemption planning. Exemption planning is not prohibited per
se, but problems can arise. A debtor would be advised to consult
an attorney prior to proceeding.
Should a debtor seek to protect non-exempt property by
transferring it to friends or relations prior to bankruptcy?
transfer could be deemed a fraudulent conveyance or a
preference. The trustee has the power to avoid pre-petition
fraudulent conveyances. Furthermore, such transfers may result
in a denial of the debtor's discharge if bad faith or
concealment is proven.
What if a lien has been filed against a debtor's assets?
A debtor may
avoid the fixing of a lien which impairs an exemption if the
lien is: 1. a judicial lien (except arising from alimony or
child support); or 2. a non-possessory, non-purchase money
security interest in: (a) household furnishings, household
goods, wearing apparel, appliances, books, animals, crops,
musical instruments or jewelry held primarily for the personal,
family, or house hold use of the debtor or dependent of the
debtor; (b) implements, professional books or tools of the trade
of the debtor or of the trade of a dependent of the debtor; or
(c) professionally prescribed health aids for the debtor or a
dependent of the debtor.
What happens to secured property in a chapter 7 case?
A debtor must
file a statement of his intention to either retain or surrender
the property within 30 days of the date of filing. Should the
debtor choose to retain the property than he must either (1)
reaffirm the debt with the creditor; (2) redeem the property by
paying the creditor the wholesale value of the collateral (only
available with tangible personal property); or (3) keep the
contractual payments current. Because it is not usually in the
debtor's best interest to reaffirm a debt and because a creditor
is not obligated to reaffirm, it is preferable for a debtor to
have payments current on secured debts when filing for
Will bankruptcy stop calls from bill collectors, repossessions,
foreclosures, evictions, lawsuits, judgments, or wage
the "automatic stay", all collection efforts must immediately
stop. The creditors are usually notified within two weeks of
filing although they can be notified quicker if necessary.
Can a bankruptcy be filed simply to delay a creditor?
debtors do this, it is an improper purpose for filing a
petition. A Bankruptcy petition should only be filed in good
faith, not simply to frustrate a creditor.
How much does it cost to file for bankruptcy?
writing, the court filing fees for chapter 7 are $200. The
court filing fees for chapter 13 are $185. My attorney fee
ranges from is $400-$800 for a typical chapter 7case and at
lease one-half must be paid prior to the case being filed. For
a chapter 13, I charge a total of $1,400 of which I typically
require $300 in addition to the court filing fee to be paid up
front. The remaining fee (typically $1,100) will be paid
through the plan (out of the money that the debtor pays to the
chapter 13 trustee). I offer free consultations by phone or
personally in my office.
Who interacts with the creditors and bill collectors after the
bankruptcy petition is filed?
attorney and my staff. You should direct all creditor calls to
my office. Use my local phone number as the toll free number
only works within Michigan.
How long will a bankruptcy appear on a credit report?
A chapter 7
bankruptcy will appear on a credit record 10 years. A chapter
13 bankruptcy will appear on a credit report for 7-10 years.
Other negative items on a credit record will remain for 7
After bankruptcy, can a debtor obtain credit?
the decision will vary depending on the particular lender. Some
lenders may consider a more balanced debt/income ratio and an
inability to obtain another chapter 7 discharge for the next 6
years to be plus factors in evaluating a prospective borrower.
Other lenders will consider a bankruptcy a permanent indicator
of poor judgment. Other factors lenders might consider include:
stability of employment and/or residence; time elapsed since
bankruptcy; and level of income. In general, if a debtor
otherwise qualifies, two years after a discharge, Fannie Mae and
Freddie Mac will not hold the bankruptcy against the debtor when
attempting to obtain a low interest mortgage. Note that while
in chapter 13 in the Eastern District of Michigan, a debtor must
obtain permission before making purchases or obtaining loans
which exceed $1,000.00.
How can credit be reestablished following bankruptcy?
are to obtain a secured credit card and/or to obtain credit with
the help of a cosigner.
How can a credit report be obtained?
three major credit reporting agencies are Equifax
(800-685-1111), TransUnion (800-916-8800), and Experian
(formerly TRW) (800-682-7654). I can obtain a credit report for
a prospective clients who comes for a consultation and has a
need for it. Usually there is a need for a credit report where
the debtor is may have lost track of some debts, creditors,
What are some alternatives to bankruptcy?
alternatives include: doing nothing, negotiating with creditors
for extensions or compromises, or going through credit
counseling. Doing nothing may be appropriate as to debts that
are small and/or where the debtor is elderly and "judgment
proof" (no foreseeable consequence for unpaid debt). Creditors
are also willing to settle on debts for a percentage of the
balance due (45-75% is common) once they become 90-120 days
delinquent. One problem with settling is that the entire amount
may need to be paid at once in one lump sum or in a brief span
of time. There may also be tax consequences as the forgiven
debt is treated as income by the IRS (unless the taxpayer is
insolvent). Credit counselors are funded by creditors and will
set up a program to pay back almost everything to the debtor's
unsecured creditors. Often times a credit counselor is able
negotiate extensions, reduced interest rates, and forgiveness of
late fees. The debtor's credit report may reflect that he is in
credit counseling which may hinder his ability to obtain credit.
All other things being equal, it would be better to go to an
established local credit counselor and not one over the internet
or telephone. As with bankruptcy, the alternatives have
positives and negatives which should be considered in light of
Will a debtor's family, friends,
or employer find out about the bankruptcy filing?
bankruptcy petition is a public record that is accessible from
the Internet, it is unlikely that a person would find out unless
that person is also a creditor. Current employers and
government agencies cannot legally discriminate against a debtor
because of a bankruptcy filing. Chapter 13 payments are
commonly made through payroll deduction so the employer in that
instance will learn of the filing.
How should a debtor prepare for bankruptcy?
with an attorney may be quite helpful. In any event a debtor
should probably: withdraw funds from any bank to whom he owes
money to avoid a set-off; stop using credit cards, pay certain
debts (e.g. utility bills, house payment, car payment, child
support) and not pay other debts (e.g. credit cards and other
Does a debtor have to list all his creditors and assets on the
failure to do so may result in a dismissal, a denial of
discharge or perhaps even being charged with a bankruptcy crime.
A debtor is not allowed to file against only certain creditors.
Even creditors who are family members or friends must be
May debts owed to friends and family members be repaid?
Yes, a debtor
may repay any or all of their debts after bankruptcy, but they
are not legally obligated to do so unless the debtor has signed
a valid reaffirmation agreement.
still have room on my credit card, should I "Max it out" before I
file to take full advantage of the Bankruptcy discharge? Should I
take out some cash advances before I file?
This is not
recommended before filing bankruptcy. The Bankruptcy Code does not
allow for a discharge of every debt. Certain types of debts and
certain conduct of the debtor will prevent a discharge of the debtor
or a discharge of a particular debt. Section 523 of the Bankruptcy
Code explains what debts cannot be discharged under chapter 7 (and
13 in some cases). In particular, look at section 523(C):
(C) for purposes
of subparagraph (A) of this paragraph, consumer debts owed to a
single creditor and aggregating more than $1,000 for ''luxury goods
or services'' incurred by an individual debtor on or within 60 days
before the order for relief under this title, or cash advances
aggregating more than $1,000 that are extensions of consumer credit
under an open end credit plan obtained by an individual debtor on or
within 60 days before the order for relief under this title, are
presumed to be non-dischargeable; ''luxury goods or services'' do
not include goods or services reasonably acquired for the support or
maintenance of the debtor or a dependent of the debtor; an extension
of consumer credit under an open end credit plan is to be defined
for purposes of this subparagraph as it is defined in the Consumer
Credit Protection Act;
This means that if
you take large cash advances within 60 days before you file, these
may not be discharged. You may be stuck with the debt after the
court cancels your debts. Furthermore, if it can be shown that you
had no intent or present ability to pay the debt (cash advances or
your "running up" your credit card; i.e. buying a whole lot of stuff
before you file knowing that there would be no way to pay), then the
court could consider it a fraud and disallow the discharge of that
debt even though you are outside the 60 days. Be careful. Filing
bankruptcy is not like winning the jackpot. Bankruptcy is meant for
honest debtors who honestly incurred debt. It is not meant for
people wanting to make a quick killing in the consumer market or
even for someone who really needs the money but has no way to repay
is the Bankruptcy Discharge and how will the discharge affect me?
If no objections
are filed, you will receive a discharge in bankruptcy. The discharge
"cancels" or "wipes out" certain debts that you had at the time the
bankruptcy was filed. A bankruptcy discharge also has the following
However, if a debt
is secured by a lien on any property belonging to you (e.g., a home
mortgage or lien on a title to a vehicle), the discharge does not
prevent the creditor from repossessing that property. Generally
speaking, you must pay a secured debt according to its terms to
Also, while a
discharge relieves you of responsibility, it does not relieve anyone
else who may be responsible with you on that debt, i.e., a cosigner
or co maker. Therefore, if your parent, friend, or relative cosigned
on the loan papers, guess who that creditor will go after? Right,
your cosigner may be sued by the creditor, and that creditor does
not even have to wait until the case is over. This can be an
embarrassing situation for both parties. In a Chapter 13 case, your
cosigner may be protected.
You will not be
required to appear in court to get your discharge order. If the
court receives no objections to your discharge, you can expect to
receive an order in the mail in approximately three months after
your creditor's meeting. When you receive the discharge order, you
should put it in a safe place with your other valuable and important
papers because you may have to show it to creditors later. Please
don't call the Court clerk, the Trustee or my office trying to speed
up the discharge process. Wait for the court to mail it.
all my debts discharged by the court?
Most will be,
however, there are exceptions. The next sections list these:
owed from the period before the bankruptcy was filed will be
discharged. This bankruptcy discharge will not discharge debts
that you became obligated to pay during the bankruptcy. Your
discharge will only cover your personal obligation to pay debts.
It will not cover cosigners on your debts and it will have no
effect on most security interests, like home mortgages and
encumbrances on motor vehicles.
there some debts that are never discharged?
answer is yes. The Bankruptcy Code specifies some debts that are not
discharged in your Bankruptcy. The list includes:
taxes (special rules apply)
unless you file a complaint in bankruptcy court claiming and
"undue hardship," i.e. very unusual and compelling circumstances
(i.e. so disabled you will never work again).
fines and costs (parking tickets, traffic tickets, Court
from a judgment against you as a result of your operation of a
motor vehicle while you were intoxicated causing death or
personal injury to another.
owed to a single creditor in an amount in excess of $1,000 for
luxury goods or services within 60 days of the date you file, or
for cash advances on your credit line aggregating more than
$1,000 within 60 days of your filing date.
If a creditor
files a complaint and proves that your debt to them arises from
fraud, breach of fiduciary duty, larceny, embezzlement,
defalcation or a material lie on an application for credit, a
drunk driving accident restitution for damage you caused, or for
willful injuries you caused to another.
maintenance and support to a spouse, former spouse or a child.
about property with liens on it? Is that debt also discharged?
Yes, but the lien
remains; and it is still subject to seizure once the case is
finished (see above). However, the following may be of interest to
(judgments, levies, non-purchase-money interests in household
goods) can be eliminated entirely by asking the court to do so.
There is an additional fee for this service. If you are
interested in this service, let me know and I will quote such a
like mortgages, motor vehicle encumbrances, and purchase money
security in other goods cannot be eliminated. If you want to
keep the mortgaged house, encumbered vehicle, or secured item,
you may have to enter into an agreement to pay a part of the
debt (reaffirmation) or the value of secured consumer debts
(redemption). Usually you are better off just continuing to pay
for the secured item rather than signing a reaffirmation
If you think
any of these agreements or motions should be filed in your case,
or if you want additional information, contact me. A creditor
cannot be forced to reaffirm an obligation, but they may be
forced into a redemption (where you pay the fair-market value of
the security in one lump sum). Redemptions are rare because most
people don't have the money. Remember, if you want to reaffirm
a debt, avoid a lien, or redeem property, you must do so before
the discharge order is signed. I won't always sign a
reaffirmation agreement unless I (personally) feel it is in your
Note: You can pay
anybody you want after your discharge, however, few debtors do. It
is important that you know the significance of your discharge order.
If a debt is discharged, that creditor cannot force you to pay that
particular debt. This means that the creditors cannot legally file
an action against you (for that debt), continue an action they had
filed before the bankruptcy, send you collection letters or harass
you in any other way.
the automatic stay provisions of the Bankruptcy Code protect money I
have in the bank, or is it seized by the court?
Money in the bank
may or may not be taken by the trustee, depending on the bankruptcy
exemptions claimed. Your exemptions may be either federal or state.
Ordinarily, the trustee is the only party that can seize your
account once you have filed your bankruptcy case with the court;
however, there is one important exception. If you have an account in
a bank, credit union, savings and loan or other financial
institution to which you also owe money, that institution may refuse
to release account funds to you once you have filed bankruptcy. This
right of set-off is most commonly used by Credit Unions where you
may be a member. This is a very important, and often overlooked
aspect that must be considered prior to filing. By the way, there is
nothing that prevents a debtor from simply closing an account before
he or she files a bankruptcy case.
there any circumstances where I could make myself liable on a debt
after my discharge?
circumstances occur when the debtor signs a reaffirmation agreement.
Reaffirmation agreements are legally binding contracts between the
debtor and a creditor wherein the debtor agrees to be liable once
again to the creditor after the entry of the discharge order. Such
agreements must always be approved by the court. This approval is
necessary to discourage unscrupulous creditors from coercing a
debtor to become liable to the creditor after the debtor has been
discharged (which legally cancels indebtedness). The court usually
discourages reaffirmation agreements, except for good cause. After
all, these are generally the same debts that got the debtor into
trouble in the first place. Reaffirmation agreements:
must not place
too heavy a burden on you or your family;
must be in
your best interests; and
canceled anytime before the Court issues your discharge or
within 60 days after the agreement is filed with the Court,
whichever gives you the most time.
If you are an
individual and not represented by an attorney, the Court must hold a
hearing to decide whether to approve the agreement. The agreement
will not be legally binding until the Court approves it. If you
reaffirm a debt, which the Court approves and fail to pay it, it is
the same as if you never filed bankruptcy respecting that debt (your
other debts are still discharged). This means the creditor can sue
you and take your property! This is not a good position to be in!
and who will be appointed?
bankruptcy case is filed, the court appoints a trustee. The trustee
has many functions, but primarily, he is appointed to examine your
case, as well as the debtor, orally, to determine whether there
would be any assets available for creditors. Most people can take
the necessary exemptions to protect their property from their
creditors and the trustee, who, after his examination makes a
determination as to whether he will take physical possession of, or
abandon (return legal control) to the debtor. In the vast majority
of cases, the trustee will abandon all property to the debtor.
Rarely will the trustee take actual possession of property in a
consumer case. However, if a debtor owns a valuable piece of
non-exempt property, the trustee will take the item and expose it to
public sale for the benefit of creditor.
just list and discharge the debts I want and keep the "good debts."
No. All debts must
be listed. Even debts to people you like, or feel a special
obligation. After the case is discharged, nothing prevents you from
paying anyone at all. If you fail to list a creditor, you chances of
a discharge are decreased and they are eliminated for the debt you
did not list.
need a credit card. Can I keep one?
Possibly, if you
do not owe any money to the creditor issuing the credit card,
however, the trustee may demand that you cut up all your credit
cards. Once you have made the decision to file bankruptcy, you
should not charge anything on any credit cards that you will seek to
discharge in your bankruptcy.
I file a Chapter 7, what if I need to do it again? Is there a limit
to my re-filing?
Once you receive
your discharge in a chapter 7 case, you cannot file another
bankruptcy and get another discharge, in a chapter 7 case unless six
years have passed between the date this bankruptcy was filed and the
date on which the new bankruptcy (chapter 7) is filed. This does not
mean you cannot file for relief under Chapter 13 of the Bankruptcy
Code, also known as a "Wage Earner Plan." You may indeed obtain
substantial assistance through a Wage Earner Plan under Chapter 13.
sheet is intended as a summary of certain points only. The terms
used in this information sheet are intended to be simple so that
they can be understood, the law is much more detailed. This
information therefore is not "the law" and is designed only to help
you understand basic bankruptcy concepts. Each bankruptcy is unique.
Your case may have special facts making further discussion
necessary. Feel free to raise any issue if you feel uneasy or unsure
can I hire you as my attorney to file a Chapter 7?
my Office at 888-4WALTER or (313) 963-4656 or e-mail me at
I plan my bankruptcy?
Of course! Good
planning is why you are reading my website and hopefully will hire a
good attorney. Pre-bankruptcy exemption planning (converting
non-exempt assets such as cash to exempt assets such as a car )is
allowed so long as it is in good faith and full disclosure is made
to the Court and Trustee via your bankruptcy petition, statement of
financial affairs and
Which bankruptcy is
right for me: Chapter 13 or Chapter 7?
Many people file
both�a Chapter 7 to get rid of unsecured debts and then a Chapter 13
to stop a foreclosure or repossession. A Chapter 13 is like a bill
consolidation loan, and you normally file it to keep property. A
Chapter 7 is used to completely wipe out unsecured debts and to get
rid of secured debts for property you don't want to keep. Both will
stop garnishments and Creditor harassment. Over 50% of all Chapter
13 cases fail because they become unaffordable. By filing a Chapter
7 first, you get rid of the unsecured debts and make your Chapter 13
repayment less. Your Attorney may want to file a Chapter 13 because
he will earn more than he would in a Chapter 7, but you will usually
profit far more from filing a Chapter 7. Usually, the only times
you will want to file a Chapter 13 are 1) when you have already
filed a Chapter 7 and can't file another one or 2) if you have so
much property and equity that a Chapter 13 is necessary to keep that
property, or 3) you are facing an imminent home foreclosure or
You may also have
to file a Chapter 13 if you have so much income (after you pay your
normal monthly living expenses) that you can repay your debts within
5 years. A Chapter 13 may also be used for special purposes, such
as to discharge special tax debts, repay child support, repay
student loans, or protect a co-signer. The fortunate thing about
virtually all Chapter 7 cases is that the Debtor�s assets are
normally exempt, so there are rarely any assets to liquidate (sell
and convert to cash for benefit of creditors).
file a Chapter 7?
If you have
substantial unsecured debts you may want to file a Chapter 7. You
may also want to file a Chapter 7 if you want to surrender property
and not owe for it. You can usually keep all your property in a
Chapter 7, because you won't have enough equity in any property to
exceed the exemptions allowed.
Why file a Chapter 13?
You may want to
file a Chapter 13 if you have secured debts and are threatened with
foreclosure or repossession, if you filed a Chapter 7 less than 6
years ago, if you wish to protect your cosigner, or if you have
debts that are not dischargeable in a Chapter 7 but are payable in a
I convert from a Chapter 13 to a 7 or from a 7 to a 13?
convert from a 7 to a 13. You have more than a 90% chance that you
will have to convert from a 13 to a 7. Over 5 years, you are very
likely to miss a payment and have the Chapter 13 dismissed (or have
to re-file). The vast majority of Chapter 13 cases are never
finished and are converted into Chapter 7 cases or dismissed
outright by yourself the debtor, the Trustee or one of the
creditors having filed a motion to dismiss. If you are close to
completing the plan, you may be granted a hardship discharge.
is a Chapter 20? What is a Chapter 26?
Some people file a
Chapter 7 to wipe out unsecured debts and then file a Chapter 13 to
keep their property. This is jokingly referred to as a �Chapter
20�. Filing a �Chapter 20� can be the intelligent and affordable
way to file a Chapter 13. Filing a Chapter 7 and then a Chapter 13
to obtain the benefits of both is very effective. You must, however
show that there has been a change in circumstances between the
filing of your Chapter 7 and the subsequent Chapter 13 and you must
be filing in good faith (i.e. without trying to "play the system").
A �Chapter 26�
refers to filing back-to-back Chapter 13 cases. You would do this
to pay debts that can�t be paid in 5 years by just one Chapter 13.
In a sense, you are �extending� your repayment time by filing two
Chapter 13s. The Bankruptcy Court will frown on multiple
bankruptcies filed repeatedly without making a viable effort at
If a Chapter 7 or
Chapter 13 alone won�t work for you, a 20 or 26 normally will.
long will bankruptcy take?
It will take
about 3 to 4 months for a Chapter 7 to be final. (You will get a
letter within 10 days of filing, telling you the time and date of
the 341 hearing. This hearing will be held about 4 to 6 weeks after
you file.) A Chapter 13 will take as long as the repayment plan
takes the normal plan is between 3 to 5 years. By statute (the
Bankruptcy Code), a Chapter 13 plan may not exceed 60 months-5
are the most common mistakes I can make when filing?
Not showing up
for your hearing and not listing all of your assets and liabilities
or debts. Fail to show up at the hearing, and your case is
dismissed. The best policy is to list all your debts and assets.
Always list every debt, even if you think it is non-dischargeable,
it may be discharged anyway. Even include last month�s utilities in
do I qualify for bankruptcy? Can I not be approved?
You qualify for
bankruptcy if either your reasonable monthly income exceeds your
income or your liabilities exceed your assets. If you don't
qualify, I will tell you when I consult with you or when I prepare
your bankruptcy. It is very rare not to qualify. You basically
have to be a resident of the Eastern District of Michigan (Detroit
area) for at least 6 months, reside in the state you file in, and
not have filed within certain time periods (i.e., you can�t file two
Chapter 7s within 6 years of each other).
if the Court does not approve my Chapter 13 or Chapter 7?
If there is
anything wrong with your Chapter 13 or Chapter 7 bankruptcy it will
usually be changed and amended. Of course, it is less costly and
time-consuming to do it right the first time. If you earn so much
money that you can afford a Chapter 13, you will be forced to change
it from a Chapter 7 to a Chapter 13.
often can I file?
You can file a
Chapter 7 six years after your last discharge from a Chapter 7. The
time is measured from the time of discharge of your first case to
the time of filing of your second case. You can file Chapter 13s as
often as needed, but you must be finished with any prior case. You
can only have one bankruptcy going on at a time.
file does it mean my old bad debts are erased from my credit report?
NO! What is
reported is that you had a debt and that a bankruptcy was filed.
Bankruptcy does not give you a good credit record or �repair� your
credit record automatically. You repair your credit by paying your
debts on time after the bankruptcy. Many credit card companies will
send you pre-approved credit card applications and car financing
offers shortly after getting your discharge. Beware of these
offers, use the credit carefully and you may be re-establishing
I file without an Attorney?
Yes. You can
file a bankruptcy yourself, and this is called �filing pro se�. You
can also do dentistry on yourself, but we wouldn�t recommend it.
Doing your own case is a very bad idea. This website alone won�t
give you the knowledge you need to do it, but it will help you
educate yourself so you can protect yourself from bad legal advice
or an incompetent Attorney.
As an example, if
you file a reaffirmation, it usually must be approved in a hearing
by the Judge, and that will mean extra hearings and time for you.
Considering the time and risk involved, we highly recommend you use
an Attorney. You may lose far more in Court than what the Attorney
would have cost�plus there may be extra time and effort on your
part. Most people who initially file their case on their own
eventually need to hire an attorney to clean up their mess. I often
charge more to clean-up a poorly filed do-it-yourself bankruptcy
than a new case since it is less time consuming for me to do it
right the first time than clean-up a mess.
about a Bankruptcy Mill?
bankruptcy through a Bankruptcy Mill or paralegal may be even worse
than doing it yourself. Many people have lost thousands of dollars
with these businesses�through intentional scams or just plain bad
work. Beware of persons coming to your house if it is in
foreclosure. These people are scam artists and like vultures
circling over an animal dying in the desert, are trying to
capitalize on your present desperate situation. Non-Attorney
bankruptcy petition preparers are barred by law from providing you
with any legal advice, however they often violate this law, often to
the detriment of the person filing. In enacting legislation
governing bankruptcy petition preparers, Congress stated: �These
preparers lack the necessary legal training and ethics regulation to
provide [legal advice and legal services] in an adequate and
appropriate manner. These services may take unfair advantage of
persons who are ignorant of their rights both inside and outside the
petition preparer's role is limited by law solely to typing. Unlike
an Attorney, a bankruptcy petition preparer can not help you
understand the law, advise you on how to answer questions, assist
you in planning, or assist you in Court. They may be useful, but
you must be prepared to do all the real work yourself. Federal law
requires that bankruptcy petition preparers sign any documents they
prepare; print on the document their name, address, and social
security number; and furnish you with a copy of the document. A
bankruptcy petition preparer may not sign any document on your
behalf, may not use the word �legal� or any similar term in any
advertisement, and may not receive any payment from you for Court
fees. The bankruptcy petition preparer is also required to disclose
to the Court the amount of any fee you pay. Beware of any
bankruptcy petition preparer who does not comply with these
paperwork do I need to bring to my Attorney?
Bring the names,
amounts, and proper addresses of all of your Creditors. Bring recent
pay-stubs, tax returns, car titles, deed to your house and other
real property, appraisal or property tax bill for your house and
your most recent mortgage balance statement. You may estimate the
amounts of any bills you owe, you don't need to call the creditor
asking for the specific amount you owe. It also helps to have the
account numbers, but we must at least have perfect addresses to give
notice to the Creditors. I have a computer database of addresses to
common creditors such as credit card companies, local hospitals,
collection agencies and attorneys and the local utility companies.
Credit bureau reports normally don't have the addresses on them. If
you have gotten a Credit bureau report before filing, bring this
with you and I will get the addresses for you.
can I get a copy of my credit report?
You can get a
free credit report if you have been denied credit, are unemployed,
are a victim of fraud. To get one free (if you qualify) or for a
small fee (if you don't) without going through a "middle man" just
contact any of the
3 major reporting services below. They will typically charge $9
to $10. If you have recently been denied credit, you will be able to
get a free copy of your credit report. This website has a link to
obtaining you report from Experian (the one I recommend). You could
also go directly to
1. Experian (TRW)
at 1 888 EXPERIAN (1 888 397 3742) allows you to charge your credit
report to your Visa or MasterCard or debit card over the phone or on
2. Trans Union at
1-800-888-4213 or write to: Trans Union Corporation Consumer
Disclosure Center, P.O. Box 390, Springfield, PA 19064-0390
3. Equifax at
1-800-685-1111 or write to: Equifax Information Service Center P.O.
Box 740241 Atlanta, GA 30374-0241. For $9, you can get an
immediate report online from Equifax at:
If you decide to
write to any of these services, be sure to include your: name,
address, phone number, previous addresses for the past two years,
social security number, birth date, employer, signature�and be sure
to include your payment. (You'll have to call to get the payment
amount.) Proof of identity such as a photo copy of your driver�s
license will also be required. For your convenience, there is a
credit report request form in Section 20.14 of this manual.
file jointly with my spouse? Does my spouse have to file or sign if
I want to file individually?
Yes, you can file
jointly. No, your spouse doesn't have to file but, if most of your
debts are joint debts, he or she may want to. In some cases, where
only one spouse has debts or one spouse has debts that are not
dischargeable, it might be advisable to have only one spouse file.
There is no need for a spouse to file if the debts are not in his or
her name. If you are filing a Chapter 7, and the bills are also in
your spouse�s name, he or she generally should file to be protected.
(Co-signers are protected in a 13, but are not in a Chapter 7.)
There should be no additional charge for a spouse filing, but some
firms do charge extra. The only extra work to do in a joint filing
is adding an additional name and social security number to the
petition. There is no reason we can think of for your spouse to
file a separate petition�it will only cost you a second Court filing
fee and Attorney fee.
it affect my spouse's credit?
responsible for my credit cards if he/she is an authorized user?
No, filing will not affect your spouse's individual credit, but if
he or she is a co-signer on any debt that is not paid that will
affect him or her. The fact that you filed bankruptcy does not
appear on a spouse's credit report unless he or she also files
Unless your wife
has signed to be legally responsible, she is not responsible.
However, many credit card companies will argue that she is
responsible. They may even put a �no pay� on her credit report if
the amount is unpaid; however, she may ask any reporting service to
correct that. If she does so, the credit card company will have to
show that she signed for it. If they can�t, it will be removed from
her credit report file. In other words, the credit card collectors
may try to collect from her by claiming she is liable, but she
really is not. If they damage her credit record, it may be grounds
for a lawsuit. Credit is normally granted based on a score from
your past payment history, the amount of debt that you owe, the
length of time you have been repaying present credit, if you have
opened credit recently, and the types of credit accounts you have.
Will my co-signers be protected?
protected only in a Chapter 13 to the extent that the plan pays the
full amount of the co-signed debt. If the plan pays the debt
completely, the co-signer is protected, but it will be listed in his
or her credit record as being paid late. The Creditor may ask the
cosigner for any remaining portion of the debt if it not paid
completely. In a Chapter 7, the co-signer will have some small
protection regarding the collateral during the proceeding, but only
because the Creditor can�t go against the property of the estate.
After a Chapter 7 is over, the Creditor will proceed against the
file a personal bankruptcy and not have it affect my business?
If you own your
own business, the business is a part of your assets. If it is worth
very much, it may be property of the Court. If your business is
incorporated and files bankruptcy, it won�t affect you because the
business does not own you.
Bankruptcy stop foreclosures, wage assignments, help me get my
license back from an uninsured accident, stop evictions, a judgment,
and remove a lien? Yes.
will happen to my bills?
When you file a
bankruptcy, a Court order goes into effect that keeps Creditors from
legally collecting from you. When you are discharged (i.e., the
bankruptcy is final), the Creditor "charges off" the debt and gets a
tax deduction for the loss. The bill is not paid, and the debt
shows up as a bankruptcy charge-off on your credit report. Some
Creditors will attempt to get around the law and will continue
attempts to collect after the bankruptcy is filed. They can be sued
for this, but you need to prove they did it. One of the best
methods is to record their call and then surprise them in Court with
it when they deny ever making the call. Most Creditors that ignore
the law will never send you letters or anything on paper after you
file, but they may make phone calls hoping that you will pay
if I keep getting bills?
You will continue
to get some bills from bankrupted debts after you file. What
happens is that the Bankruptcy Court sends out notices to the
addresses that you give to them (that is why correct addresses are
so important), but some Creditors never get these notices and
continue to bill you or maybe you listed the original creditor and
that account has been sold or transferred to a collection agency or
attorney. You should make copies of your original hearing notice
(Notice of Commencement of Bankruptcy). If you get a bill or other
dunning letter from a Creditor, send them a copy of the bill and the
notice. Some Creditors will continue to send bills even if they
receive notice. It may be that their computer can�t stop sending
out the bills, or they may simply be ignoring the stay hoping that
you will pay anyway. If this becomes a problem, and you have proof
that a Creditor is doing this on purpose, contact my office.
have to pay my bills during the Chapter 7 or 13?
No. Don�t pay
any bill (except a home or car note you wish to keep and your
post-filing utilities) until after you file a reaffirmation in a
Chapter 7. Don�t pay any payment in a Chapter 13 unless it is the
regular monthly mortgage payment or car payment, and the 13 was
filed to catch up the arrearage. A stay is a federal Court order to
stop. If the item is secured, your overdue payments will continue
to add up while you don�t pay on the item. However, the Creditor
can't proceed against the collateral until the stay is terminated.
Often, the Creditor will file a motion to terminate the stay after
the bankruptcy is filed. Bankruptcy stops your obligation to pay,
but the Creditor may still have a lien and rights in the property.
You often quit paying for items when you file so that you have time
to decide if you want to reaffirm, redeem, or surrender. I have
rarely ever had a bank refuse to reaffirm a debt, but you don�t want
to make payments if they aren't going to reaffirm with you and they
only want the property. In some rare cases, with people who are
never going to repay, the bank may refuse to reaffirm. In these
cases, the bank only wants the property back. Also, some credit
unions may refuse to reaffirm a car or mortgage unless you also
reaffirm their credit cards or other loans or accounts you have with
them. In cases like this, you may want to redeem (pay one lump sum)
the property instead. That is why you don�t want to make any more
payments just before or after you file. You can take the time to
negotiate your options. You don�t have to be caught up on your
payments to reaffirm, but some banks may request it�and all of them
notifies the Creditors and bill collectors?
bankruptcy petition is filed, the Court mails a notice to all the
Creditors listed in the schedules. This usually takes 1-2 weeks.
have to go to Court in a Chapter 7?
Not exactly, but
you will have to attend a hearing presided over by the bankruptcy
Trustee. This hearing is called the 341 Hearing (Meeting of
Creditors). At this hearing, the Trustee (who is usually an
Attorney) will ask questions of you, under oath, regarding the
content of your bankruptcy papers, assets, debts, and other
matters. It is very much like a deposition, not like a trial. If
you can�t attend (example: if you are in the service overseas), you
may be allowed to have a family member or other next of kin testify
on your behalf. The Trustee is not the judge. He is there to take
any assets from you, if he can, and to check the accuracy of your
paperwork. The Trustee represents the creditors, not you. You
generally only have to go to actual Bankruptcy Court where the Judge
presides only if there is a dispute in your case with the Trustee or
one of your creditors. Sometimes the Judge may call a hearing in
your case depending on certain circumstances. I will advise you if
you actually need to go to Court.
Where is my 341 hearing?
Your 341 hearing
is always at the Federal Court closest to you.
In metro Detroit,
your 341 hearing will be held in the basement at 211 West Fort
Street, Downtown Detroit at the corner of Fort Street and
Washington. Always give yourself ample time for parking.
do I wear to the hearing?
The 341 meeting is
a Federal Court proceeding so dress and act appropriately. Don�t
wear cut-offs or jeans with holes in them and don�t wear sandals.
Suits are not required, but dress properly for a hearing in Federal
Court. Children are not supposed to be in the hearing room. Do not
borrow and wear flashy jewelry. This is not the time to brag about
how rich you are or how much you own. The Trustee is looking for
assets to take from you. He is not your friend. He represents the
persons that you owe. You must report in your bankruptcy papers
everything that you own and it�s real value, but don�t brag about
your income and possessions�especially if you don�t have any. Save
that for when you want to impress the opposite sex in bars.
you show up with me at the hearing?
Of course! I
will take care of you, and hold your hand through the process. I
don't just file the paperwork. However, there is some work that you
must do on your own and, if you read this manual thoroughly, you
should be able to make the most of your bankruptcy without too much
help from us.
should I file tax returns if I am going to file bankruptcy?
If I file in
December do I keep my refund? If you are considering filing a
bankruptcy, you should file your tax return as early as possible.
Get your refund before you file. If you do, you will generally
keep your refund no matter how much it is. If you file in January,
you may have to wait for some time after you get your refund back.
You will be asked when you got your refund and how you spent it if
you got a large refund. Be sure to list any anticipated tax refund
in your bankruptcy papers so that I may exempt it if possible.
will happen to my house and car?
Usually, you keep
them. If your equity is less than or equal to your exemption, you
keep the property. You are allowed to keep a certain amount of
equity and property in bankruptcy. When I prepare your bankruptcy I
will tell you if you are at risk of losing property. At the time of
filing, all your property that is not exempt belongs to the Court.
The idea is to exempt it all so that you keep it all.
have to keep up the insurance on my vehicle?
Will my rates be
affected or will I be dropped? In Michigan, the law requires you to
have PLPD or No-fault insurance at a minimum. PLPD stands for
personal liability and property damage insurance. If you are
financing or leasing a motor vehicle, your financing contract will
more than likely require you to maintain full-coverage insurance.
This protects the finance company (lien-holder) in case the vehicle
is in an accident or stolen. If you fail to keep full coverage
insurance on your vehicle and it lapses, the Creditor may petition
the Court to get relief from the Bankruptcy stay to allow them to
pick-up your vehicle-they will argue that you may get in an accident
or it may be stolen and you could just walk away from it-with them
taking the loss. Most insurance companies are happy to keep you if
you simply pay on time and have few claims. We can generally say
that if you pay your premiums on time and keep the same company,
probably nothing will happen. However, this may be a good time to
compare rates with other companies�especially if you fear you may be
dropped or raised because you listed your insurance company as a
debt (or if you are bankrupting an accident claim).
a Creditor be forced into a reaffirmation?
No, a Creditor
can�t be forced into a reaffirmation. Can a Creditor be forced into
redemption (a lump sum payment for fair-market value)? Yes, a
Creditor can be forced into redemption.
A reaffirmation is
an agreement to pay the payments on the loan, and it is very rare
for the Creditor to refuse a reaffirmation. If the bank does not
agree to a reaffirmation, it will usually take a large loss from
selling the vehicle at an auction, or the house in a foreclosure.
It may even violate federal lending rules by refusing to reaffirm on
a home mortgage. A bank may be able foreclose or repossess,
regardless of whether you are in a bankruptcy. If they have started
a foreclosure, the filing of the bankruptcy stops the foreclosure
but, in a Chapter 7, the bank may file a motion with the Bankruptcy
Court and ask to foreclose anyway. If a Chapter 13 offers a good
repayment plan, the Court will not approve any foreclosure. If the
bank is adamant that it wants the house or car back, it may do so in
a Chapter 7 and take a loss. Normally, the bank will rethink their
decision and give you one more chance through reaffirmation, but no
one can force them to reaffirm.
A redemption is an
agreement to pay the bank what the security is worth in one lump
sum. They cannot refuse the redemption. If you wish to redeem a
car by paying a lump sum, contact my office.
I choose which Creditors I repay?
Yes, you can
reaffirm to pay one Creditor, but not another, after the
bankruptcy. By doing this, you can keep one car, but not another,
or keep a credit card, but let a lemon auto go back. A Creditor
will have to agree to the reaffirmation, but few refuse. Of course,
we highly recommend you don�t reaffirm unsecured debts.
I revoke my reaffirmation?
Yes, but it must
be revoked or rescinded within 60 days of the 341 hearing or before
discharge, whichever comes first. It should be revoked in writing
and sent by certified mail so you have proof. Or you could retain me
to do it for you and I will file the rescission with the Bankruptcy
Court and docket a copy in your official court file.
want my house or car to go back. Will I lose it immediately?
No. You will
normally have until the 341 hearing or a couple months thereafter to
return your car and owe nothing until then. Use that period of time
to look for another vehicle you can afford.
If you choose to
let your house go back, you will normally have about a year to live
in it rent free. The shortest period for a foreclosure is about 6
months, and I have seen it take up to 2 years. Remember, a
repossession will normally do a lot more damage to your credit than
a bankruptcy. Filing a Chapter 13 to catch up on your payments
(within 2 years) is one way to keep your home. The only good
reasons to let your house go back are that you have a large amount
of negative equity in it or that it is an overwhelming burden.
Will I lose my 401(k) or retirement fund?
retirement is completely exempt and protected under both Michigan
(state) and Federal (United States) law. Other states have other
exemptions to protect retirement plans. However, you should talk to
a qualified Attorney to get his opinion. 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 under 11
U.S.C. sec. 541(c)(2). Unlike 401(k) plans, IRA accounts are not
ERISA-qualified plans. However, in Michigan and most other states,
an IRA may be excluded from the Bankruptcy Estate or otherwise
exempt because of a state statute. Some Bankruptcy Court judges
have held that an IRA may be partially exempt under 11 U.S.C. sec.
was just sued and they have just attached my paycheck or bank
account what can I do?
If property was
taken from you just before filing bankruptcy, and it was over $600,
the creditor can sometimes be forced to give it back. I will charge
a fee of 50% of the amount I am able to recover from the creditor,
if any. Liens on property that were from a lawsuit can be removed.
Garnishments and foreclosures can be stopped. The sooner you seek
help, the sooner you can stop the procedure. It is important to
seek help as quickly as possible.
happens if I quit making my payments in a Chapter 13?
Your Chapter 13
will be dismissed from Court, and you will go back to owing the
original debt and being unprotected. However you should be able to
re-file. In cases of multiple repeat filings, however, the Court
may dismiss the case with a 180 day bar (prohibition) to re-filing
under any Chapter. This is rare and usually occurs when it is
obvious to the Court that you are abusing the privilege that a
Chapter 13 Bankruptcy offers.
reduce my monthly credit card or automobile payments in a Chapter
Yes, a Chapter 13
can reduce your monthly credit card and automobile payments. It can
also reduce your interest rates to 12%, 10%, or even 0% on tax,
secured, and unsecured debts. Note that you cannot force your
mortgage company to take less per month than the normal monthly
payment in your mortgage. You can, however, pay the arrearage
(amount you are behind) over 36 months at 0% interest.
have to pay back 100% of what I owe in a Chapter 13?
No. You can repay
as little as 10% to your Creditors in a Chapter 13. The amount you
pay to your unsecured creditors depends on your ability to pay (i.e.
your net disposable income vs. your reasonable monthly expenses).
This is the "best interest of the creditors" test. Your plan must
be proposed in good faith, it must not be a disguised Chapter 7.
The liquidation analysis requires you pay the amount, if any that
your creditors would receive if your case had been filed under
Chapter 7 and your estate were liquidated. Your Chapter 13 must pay
at least what a Chapter 7 would have paid. Certain plans may pay
much less than 100% if that is all you can afford. The Trustee
likes to see a 100%, 36 month plan.
pay some Creditors and not others in a Chapter 13?
In a Chapter 13,
you can pay the secured Creditors more than the unsecured Creditors
and the priority debts differently than the secured Creditors. You
can�t (shouldn�t) discriminate and pay one unsecured Creditor
differently than other unsecured Creditors.
Should I try a Debt Counseling Service instead of filing bankruptcy?
How do Debt
Counseling services work? "Debt Counseling Services" are often
high-interest loan companies. Other times, they are agencies that
pocket 10-40% of the monthly money that you pay to them as fees for
their "counseling". Most of these services will combine your bills
and send a partial payment to each bill that you owe. Usually there
best interest are not for you but for their ultimate client in many
cases, the credit card companies. Your credit will be listed by the
credit card companies as delinquent for sending in partial payments,
and the reduced amounts sent in may not even cover the interest that
a debt charges. These "Counseling Services" are often simply
rip-offs that pretend to be charities or helping agencies. They are
not using the law to your advantage and have no real "power" to deal
with your creditors. Filing a Bankruptcy petition puts the ball in
If you pay a debt
counseling service $100 a month, what happens is that they take up
to $40 for themselves and then send your Creditors $60. Your bills
fall even farther behind. Eventually, Creditors file lawsuits and
you are forced into bankruptcy anyway. Very few of these "repayment
plans" work and over 90% fail, leaving you worse off. Another scam
is that some debt counseling companies will charge thousands of
dollars by promising to find you a consolidation loan as a loan
broker or mortgage broker. These loans end up being at a
high-interest rate or they pocket your money and never give you the
loan. Others strip the equity from your home. Whatever method
used, "Debt Counseling Services" are often scams meant to take your
money when you are already in trouble.
Also be wary of
using services that claim to �repair� your credit file. Some may
attempt to create a new credit file by getting a new social security
number. Changing your identity is a felony, especially if you steal
another person�s identity. Creating a false identity and using it
may also be a felony.
long should I keep a copy of my Bankruptcy?
You should keep a
copy of your bankruptcy, with your tax papers, for at least 7
years. You are only required to keep receipts 3 years by the tax
department�after 3 years they have the burden of proof�but keep them
for 7 years anyway.
will I be able to get credit again?
Normally, you will
qualify for a home mortgage at normal rates within 2 years. You
will be able to get other credit within 6 months to a year. Your
ability to get credit is based on your income and your history of
repayment, as well as the security you offer. You should be able to
purchase a car or house if you reaffirm one or two debts and pay for
them on time after your discharge. You always have to be able to
afford what you are buying on credit or meet credit standards. You
will have to reestablish your credit by paying on time after your
filing. There are companies that lend to you while you are in
bankruptcy and just after bankruptcy. 722 Redemption Funding will
sell you a car at wholesale price (at about 25% interest), and they
will also finance the redemption of some cars at the wholesale book
my employer and landlord find out about my bankruptcy?
petitions are public records; however, under normal circumstances,
no one will know you filed a bankruptcy petition unless you tell
them. If your employer or landlord is a Creditor, it must be listed
as a Creditor on the schedules, and it will receive notice of the
bankruptcy proceeding. In some states, Chapter 13 Debtors are
required to make payments through wage garnishment, which means the
employer will learn about the bankruptcy.
this affect my getting an apartment?
Many of the larger
apartment complexes are owned by banks, and banks tend to grant
leases according to credit bureau reports. This may affect you.
Small landlords will call former landlords and may not check credit
employers discriminate or fire me?
No. There is an
anti-discrimination section of the Bankruptcy Code that prevents
employers and the state of Michigan from denying you licenses or
discriminating against you when hiring. But do yourself a favor:
Keep it to yourself. They generally won�t know unless you tell
are bankruptcy crimes? Do they exist?
statutes related to bankruptcy can be found at 18 U.S.C. sections
151 to 157. Examples of bankruptcy crimes are knowingly and
fraudulently concealing assets, lying under oath or on bankruptcy
schedules, and knowingly and fraudulently filing a false proof of
claim. Bankruptcy fraud can also be used to support a RICO claim.
Bankruptcy crimes are often the result of claiming that you don�t
own property that you do own or that has been transferred to conceal
it from the Court.
have to disclose all of my assets?
Yes. If you
knowingly and fraudulently conceal an asset from the Court, you have
committed a felony and you can be fined up to $5000, imprisoned for
up to five years, or both. However, this is rare and normally comes
up in only the worst cases. In addition, the Court can deny
discharge, or dismiss or convert your bankruptcy proceeding.
run up charges on my credit cards just before filing?
answer is �No�. Many people do make some minor charges on their
charge cards just before filing. (Read between the lines here.)
Charges of over $1000 on any one card within 60 days before filing
are presumed to be fraudulent and non-dischargeable. Cash advances
totaling $1000 or more within 60 days of filing are
non-dischargeable. Charges to an account more than 60 days before
filing are presumed proper regardless of the amount.
There is no reason
to pay any further on debts that you are planning to avoid in
bankruptcy. Normally, you should file as soon as you can, but it
won�t matter if you pay the bills or not before you file. It doesn�t
matter if you owed $10,000 or $10,000,000 before you filed or
whether or not you paid on time before you file bankruptcy.
We suggest to
clients that they not charge over $1000 on any one credit card or
loan within 60 days before filing, but you certainly don�t want to
pay any more on the cards, and you may want to take one last small,
reasonable trip to the mall. If you charge more than $1000 within
that 60 day period, the credit card company may require you to pay
the full amount owed to them. So, the simple answer is not to
charge anything for 60 days before you file. We have had clients
charge over $5000 dollars, and wait 90 days before filing, with no
problem. However, be aware that �fraud� is open to judicial
discretion. The anti-fraud statute also looks at whether or not the
charges were for luxury items or normal purchases: A fur coat or
jewelry would be more likely to be seen as fraudulent than school
clothes for the children, gas, and groceries.
I give property away just before filing?
Gifts of property
over $600 just before filing are improper, and the Court can go
after that property and the person you gave it to. Gifts under $600
are not improper.
I bankrupt my utility bill?
Yes, but they
may make you pay a deposit equal to one month's service. If you
include utilities in your bankruptcy, you need to immediately advise
your utility that you have filed and tell them your case number and
the date you filed. If you simply file a Chapter 7, don't pay, and
don't contact them, you may end up having your service turned off.
It may be a month before the utility finds out that you have filed,
so if you list a utility advise them immediately.
bankruptcy stop a lawsuit?
Yes, but it will
not stop criminal cases or criminal restitution. Criminal
restitution is non-dischargeable.
I get my drivers license back?
If you have lost
your license due involvement in an accident where you had no or too
little insurance, filing bankruptcy will restore your license. I
will notify the proper authorities for you such as the Secretary of
State and the Michigan Bureau of Driver Improvement. You may have to
wait until your case has been discharged before the Secretary of
State will reinstate your drivers license.
are predatory lenders?
don't care if you ever repay them not: They lend not on your
ability to repay, but instead based on the equity that they can
steal from your home or in their ability to overcharge you and then
sell the very profitable loan to another lender. When you fail to
pay, they foreclose to collect. They charge prepayment penalties,
higher interest, and upfront loan costs to get you the loan. They
often use unfair lending tactics, like flipping and packing, to
increase income and then don't keep the loan but sell it to another
company. They target poor, elderly, minorities, and the uneducated
in advertising and overcharge heavily so that the loan can never be
paid off. Home improvement companies will sometimes use these
mortgage companies to process loans for home improvements that are
poorly made (if they are made at all), and the result is that you
have signed away your home for second-class home improvements.
Predatory Lenders often overcharge for filing fees, reporting costs,
and closing fees, and then fail to report the charges. If you are
lucky, you will be able to sue them for truth-in-lending violations
and, perhaps, have a free home. The more they steal or overcharge
you, the more proud they are of doing it to you.
125% of my mortgage to the predatory lenders that took all the
equity in my home when I refinanced. What can I do?
In a Chapter 13,
you may be able to reduce or remove the lien on a property and repay
only the amount that the house is worth. This is called �lien
stripping�. However, you can only do this in a Chapter 13. You
can�t lien strip in a Chapter 7 bankruptcy except by redeeming the
property under 722 or removing household goods and judicial liens
under 522 (f). You can, however, lien strip mortgages and
consensual liens, to the extent that they are unsecured, in a
Chapter 13 and then convert to a Chapter 7. By doing this, you
would pay 100% for the house mortgage that is really secured. In
other words, you would only repay the value of the home to the
mortgage holder and 10% on the other 25% in the Chapter 13.
Contact Attorney Walter Metzen for more information on the following
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have a small retirement account-is it exempt?
retirement accounts can�t be taken by creditors or the bankruptcy
court. The question is whether or not this is a retirement account
just calling it a retirement. Account does not make it one. Real
retirement accounts cant be assigned or attached. If it can be spent
by you, assigned, or attached it isn�t a retirement account for
purposes of the exemption. If the stock is worthless you can list
it and if the trustee (which is what the trustee normally does with
worthless property) abandons it then it will belong to you. However
at the moment of filing your Chapter 7 bankruptcy all your property
technically belongs to the Trustee.
notice that you have a few more creditors like DTE Energy, or some
attorneys that I don't owe, or the creditor addresses are different,
This is just me
covering all the bases and insuring that you discharge every
possible debt and I sometimes know where the creditor wants the
notice mailed. I also often list known collection agencies and
collection attorneys who may later pick up the account.