Frequently Asked Questions

Q: What is bankruptcy?
A: Bankruptcy is a process under federal law that allows debtors who owe more money than they can pay to either get rid of their debts or work out a payment plan to pay a portion (or all) of their debts over a longer period of time.

Q: Does bankruptcy stop all the harassing phone calls and bills from debt collectors?
A: Yes! An "automatic stay" will take effect when you file your case. It will immediately stop creditor harassment.

Q: Does bankruptcy stop a wage garnishment from a lawsuit over an unsecured debt, like a credit card or medical bill?
A: Yes. The automatic stay will stop the garnishment.

Q: How long will bankruptcy remain on my credit report?
A: Bankruptcy can remain on your credit report for ten years. But, when you file for bankruptcy the majority of your credit report will be wiped clean. Your high balances are removed as are any late payments or records of unpaid debts. All of the accounts included in the bankruptcy will be marked as "Included in Chapter 7 Bankruptcy" or "Included in Chapter 13 Wage Earner Plan," depending on which type of bankruptcy you filed. Both types of bankruptcy affect your credit score in the same way. You are then classified as a "bankruptcy filer" by FICO and you credit score will be based on how you compare to other bankruptcy filers. You will probably not achieve a perfect score of 850 as long as the bankruptcy is on your credit report, but a score in the 700's in not unreasonable if you practice good credit management.

Q: What about my credit after bankruptcy?
A: First of all, if you are considering bankruptcy, your credit is probably not all that good to begin with. Secondly, most clients report their credit rating scores actually IMPROVE upon filing their case! Clients typically start receiving multiple offers of credit about 90 days after filing Chapter 7. Credit card companies begin to see them as inviting targets for credit card solicitations because they recognize the filing individual's debt-to-income ratio has gone to zero after filing and that the filing individual is prevented from filing another Chapter 7 for eight years. Bankruptcy can actually become a tool to rebuild a credit rating.

Q: What does "secured" or "unsecured" debt mean?
A: Secured debt is debt that is owed against property (i.e. loan home, real property or car loan). Unsecured debt is held by creditors that have no claim to your assets (i.e. credit cards, medical bills).

Q: Why would I want to file Chapter 13 rather than Chapter 7?
A: There are certain debts that a Chapter 7 does not handle:

- Student loans
- Car loans
- Home loans

A Chapter 13 will usually allow you to handle these debts (for example, lowering the purchase price, monthly payment and interest on a car) while paying your credit cards and medical bills nothing.

In Chapter 7, you are allowed to keep property only if it is "exempt" (a house, for example, only if it has a limited amount of equity).

In Chapter 7, the person filing is protected from their creditors. However, those same creditors are free to collect from any co-signers. In Chapter 13, the co-signers can be protected as well.

Q: Will my car or truck be repossessed?
A: NO! Once the bankruptcy is filed, a federal court order called an "automatic stay" goes immediately into effect, preventing a car from being repossessed. In a Chapter 7 bankruptcy, the client simply continues to make the payments on the loan. In a Chapter 13, a monthly payment is worked out with the court, which in turn pays the car lender. That monthly payment is often hundreds of dollars less than the original payment, and can be imposed upon the lender regardless of how many months the client may have missed prior to filing bankruptcy.

In a Chapter 13 bankruptcy, the client typically pays the value of the vehicle with either the contract rate of interest OR the market rate, whichever is lower. Since most clients owe thousands of dollars more than their vehicles are presently worth, they get to save a substantial amount on the purchase price. If we can also significantly reduce the interest rate, the result is a monthly payment often HUNDREDS OF DOLLARS less than the original car payment.

Q: Can I get rid of taxes in bankruptcy?
A: Bankruptcy is one of the few areas where you can immediately and powerfully stop IRS and state tax collection activities. The moment your case is filed, the IRS must immediately stop wage garnishments and bank levies! Taxes that are over 3 years old can typically be TOTALLY ELIMINATED. More recent taxes have to be paid, but usually with no more interest or penalties.

Q: Can I use bankruptcy to stop a home foreclosure?
A; YES! If you have missed mortgage payments, or were not able to pay off an expired balloon payment, a foreclosure process can be commenced by the lender. A Chapter 13 bankruptcy allows you to place an immediate halt to the foreclosure process. If you are able to resume the mortgage payments, the Chapter 13 allows you to make up the ones missed over several years. Even if you cannot resume the mortgage payments, the Chapter 13 may allow you sufficient time to sell your home and at least gain the equity in cash that otherwise would be lost in foreclosure.

Q: Can I get rid of student loans through bankruptcy?
A: It is nearly impossible to discharge student loans in a bankruptcy (unless the debtor is permanently disabled or diagnosed with a terminal illness) but it is possible to restructure the debt in Chapter 13. Bankruptcy can gain you a student loan deferment of up to five years.

Though you will still owe that portion of the loan which was not yet paid, at the end of the deferment, your career will presumably be back on track and you will be debt-free and better able to resume payment of the student loan.

Q: Do both spouses have to file?
A: We can talk with you more about this. The spouse that doesn't file may end up being responsible for some of the debts.

Q: Will I lose my social security payments if I file for bankruptcy?
A: No

Q: Can I choose which debts to put in the bankruptcy?
A: No. You must include all of your debts.

Q: Do I really have to report all of my assets and property?
A: Yes, not reporting all of your assets can get your case dismissed. Please report all of your assets to us before filing.

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Q: What happens if I find another debt after I have already filed?
A: We can amend your case to include any additional debts you may find after the case is filed.

Q: What happens if I can't make my Chapter 13 payments to the Trustee?
A: You must call our office immediately, missed payments can get your case dismissed and all of your debt will come back to you in full! If you can't make the payments due to job loss or other reasons, we can modify your plan.

Q: How long will I be in bankruptcy?
A: Usually, a Chapter 7 bankruptcy discharge is received 60 days after the 341 meeting, or first meeting of creditors. In Chapter 13, you will be notified of your Chapter 13 discharge once you have completed the payments under the Chapter 13 plan, usually in 3-5 years.

Q: Should I feel embarrassed about filing for bankruptcy?
We feel that there is no shame in filing for bankruptcy, these economic times have been very difficult for so many hard working people, bankruptcy is often a necessity. Bankruptcy can be the solution for a wide range of people in different financial situations.


Many famous people have filed for bankruptcy throughout history, including:

•Abraham Lincoln
•Thomas Jefferson
•Donald Trump
•Larry King
•Francis Ford Coppola
•Walt Disney
•Henry Ford
•Ulysses S. Grant