If you are having debt problems, at some point you will probably consider filing for bankruptcy. It is always a good idea to consult with a knowledgeable bankruptcy attorney who fully understands the wide range of options available to you and the advantages of each. Below are answers to some of the questions you may have regarding bankruptcy.
What is bankruptcy?
Filing for protection under federal bankruptcy laws provides a fresh start for individuals who are no longer in a position to effectively manage their debts. Depending on the type of bankruptcy you file for, you may be allowed to discharge (be forgiven) some of your debts and/or establish a workable payment plan for the rest. Types of bankruptcy are named for their chapters in the U.S. Bankruptcy Code.
What type of bankruptcy should I file for?
Individuals who file for bankruptcy, almost always either liquidate through Chapter 7 or reorganize through Chapter 13, while businesses that go through the process usually file for Chapter 11. Your skilled attorney will advise you about whether you need to file and, if you do, which type of bankruptcy is appropriate in your situation.
What is Chapter 7 bankruptcy?
The most common type of bankruptcy filed by individuals is Chapter 7, also known as “straight bankruptcy.” It gives the debtor the opportunity to trade in assets in exchange for wiping most of the slate clean. Once a Chapter 7 bankruptcy has been filed, a trustee will be appointed to collect the debtor’s assets and cash them in to pay creditors. In nearly all cases clients can keep all of their property. Most of the individual’s remaining debts will be discharged and creditors will be required to stop any debtor harassment.
Are there any debts that won’t be erased by bankruptcy?
Yes. You will continue to owe certain non-dischargeable debts even after going through the bankruptcy process. These include: child support, spousal support, student loans, fines and penalties for breaking the law, and most tax bills.
Does filing for Chapter 7 bankruptcy leave you destitute?
No. It is not the goal of bankruptcy to leave you homeless or penniless. Most of your assets are considered “exempt,” meaning that you may retain them even after filing for bankruptcy. Exempt assets include your dwelling and your vehicle (up to certain established values), some of the cash in your bank account, and financial items such as federal or military retirement accounts and disability benefits. Exemptions vary from state to state and in some states you may choose whether to take state or federal exemptions. In Georgia, however, you must use state exemption standards.
What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy accommodates individuals who want to be responsible and pay their debts but presently find themselves unable to do so. You may be in such a position if you are now employed and earning a good income, but have recently experienced a period of hardship and are trying desperately to catch up. Chapter 13 bankruptcy is a method of consolidating and organizing your debts so that they become less overwhelming and more manageable.
Why do you need an attorney to file for bankruptcy?
Your bankruptcy attorney is an integral part of the filing for bankruptcy since he or she will advise you whether bankruptcy is the right path for you and, if so, which type of bankruptcy you should consider. In addition, if you are filing Chapter 13, your lawyer will help you come up with a repayment plan that will meet with the court’s approval. Depending on the amount of debt you have accumulated, you may arrange for a payment plan that lasts from 3 to 5 years.
How is Chapter 13 bankruptcy administered?
Once the court approves your repayment plan, a trustee is appointed to oversee your repayments. Once the period of bankruptcy is over, any remaining debt will be discharged with the exception of the non-dischargeable debts mentioned earlier.
What effect will bankruptcy have on my credit score?
Even though bankruptcy filings are a matter of public record and will be part of your credit report (like other reported items it usually drops off after 7 years), you should remember that your credit score will quickly rise once your bankruptcy has been completed and you have eliminated the bulk of your debt. Also, it may relieve you to know that the law prohibits discrimination in hiring because of a bankruptcy filing.
After your bankruptcy is discharged, you will still be able to obtain credit if needed. In fact, the longer you wait to apply for credit the higher your credit score will be.
Can businesses file for bankruptcy?
Yes. In some cases, businesses that are ready to close their doors and liquidate their assets can file for Chapter 7. On the other hand, when companies want to reorganize their debt while continuing to be in business, their best bet is to file Chapter 11. When businesses file Chapter 11, in addition to submitting a repayment plan to the court, they will be required to provide all their creditors with disclosure forms that enable the creditors to evaluate the proposed plan.
Is bankruptcy the only option for debt relief?
No, there are several types of settlement options available as alternatives to bankruptcy. A knowledgeable bankruptcy attorney will be able to present you with a variety of options.
What are the eligibility requirements for bankruptcy filing?
If you live in Georgia and have a higher than median income for the state, you have to pass a means test (proving that your debt is as high as you say it is) in order to be eligible to file for Chapter 7 bankruptcy. This is to ensure that you are not filing for bankruptcy as a way of cheating your creditors. The state will determine if you have enough money to pay back a portion of your unsecured debts through a Chapter 13 bankruptcy which, of course, your creditors would prefer. If your income is below the Georgia median for your household size, however, you are exempt from the test and may file for Chapter 7 bankruptcy without taking it. Certain individuals, such as disabled veterans, are also exempt from the means test.
You should also be aware that In order to qualify for either Chapter 7 or Chapter 13 bankruptcy, you must demonstrate that you have received credit counseling during the 6-month period before you file from an agency approved by the U.S. Trustee in Georgia.
What are the advantages of filing for bankruptcy?
The major advantages of filing for bankruptcy are that, once you have filed, an automatic “stay” goes into effect, prohibiting almost all collection actions by your creditors, including lawsuits and relentless harassment and garnishing wages. Filing for bankruptcy may even postpone foreclosure proceedings on your home.