FREQUENTLY ASKED QUESTIONS:

WHAT IS BANKRUPTCY?

Bankruptcy is a legal process under federal law to provide a fresh financial start for people who cannot afford to pay their bills and debts.  Bankruptcy can allow you remove any personal obligation to repay many types of debt and start over.  As soon as you file for bankruptcy, your creditors will be stopped from taking any further actions to collect your debts, without first getting approval from the bankruptcy court.   Often you can wipe out many, if not all, of your debts, without losing any of your property or assets.  Certain debts are not effected, such as student loans, spousal or child support, taxes, penalties and fines, amoung others.

CHAPTER 7 vs. CHAPTER 13         

Debtors with primarily consumer debts generally have two chapters of the Bankruptcy Code to consider filing under, Chapter 7 and Chapter 13.  Debtors with higher incomes may be forced to file under Chapter 13.  This is part of the recent “means testing” that was  a major part of the 2005 bankruptcy reform.  The means testing requirements are discussed below.  I will provide you with information on both Chapter 7 and Chapter 13 and help you determine which chapter will best help your situation.

Chapter 7 is a “liquidation bankruptcy” meaning certain non-exempt assets could be sold by the bankruptcy trustee to repay creditors.  For many people, most if not all assets are exempt from the trustee’s reach and you will be able to keep them.  I will personally review your situation prior to filing and advise you as to any non-exempt assets you may have, and the options you may have to retain those assets or their value.   A Chapter 7 case generally takes about 3-4 months to complete, from filing until the discharge is granted.  This is often the best option for consumers with large amounts of credit card debt, medical bills, or other forms of unsecured debt.  

Chapter 13 involves combining all your debts and setting up a repayment plan to repay a portion of your debts over a period of time, usually three to five years.  In a Chapter 13 filing, the court will review your income, determine your allowed monthly expenses and set a repayment plan to make one monthly payment to the bankruptcy trustee to repay your creditors.  Often the portion you repay may end up being just pennies per dollar of debt.  Chapter 13 can be your best or only option if you are behind on your mortgage payments and want to save your home.  Any overdue mortgage payments can be made part of the repayment plan approved by the court, and your lender can be forced to accept the plan the court approve.         

DO I HAVE ENOUGH DEBT TO FILE?

As a general rule, and this is only a general rule, if you have unsecured debts totaling over $10,000 or your unsecured debts are greater than six months income, you should speak to a qualified bankruptcy attorney about your situation.  This is especially true if you are behind on credit card debts and your interest rates have now increased, often to almost 30%, and sometimes even more.  Under that circumstance it is often almost impossible to ever get out from under your debt without filing for bankruptcy.  The worst thing you can do is nothing.  If you are in this circumstance you should immediately seek qualified advise, either from a bankruptcy attorney, or from a credit counseling agency.  Depending on your circumstances a credit counseling agency may be able to negotiate a reduced interest rate on the credit cards and a reduced monthly payment to allow you to pay the accounts off.  Sometimes, you are simply in too far and your only real option may be bankruptcy.  The determination as to if and when a client should file for bankruptcy is a complicated and an individual analysis must be completed for each case.  Your income level and debts levels must be reviewed, as well as your spending habits and ongoing obligations, to determine both whether you should file, as well as which chapter you should or can file under.  Debtors with secured debts for homes may find Chapter 13 the more appropriate chapter.  If your debt is primarily unsecured debt such as credit cards or medical bills, Chapter 7 is usually the better option, provided you qualify under the "means test".  The means test sets income limits for filing under Chapter 7 based on family size and necessary expenses.  If your income is too high you may be required to file under Chapter 13 and repay your unsecured creditors some of your debt.  

WHAT IS “MEANS TESTING”?     

The Bankruptcy Code amendments which took effect October 17, 2005 require “means testing” to determine if debtors have significant income to allow them to repay a portion of their debts.  Part of a Chapter 7 filing is an analysis of your average income over the prior six months to see if your income falls above or below certain limits based on household size.  If your income is below the means test amount for your household size then you are generally allowed to file under Chapter 7 without any further showing.  If your income is above the means test amount, then a second more complicated analysis is required, which may still allow you to file under Chapter 7.  If your income is too high, then you will be required to file under Chapter 13, and repay your creditors a portion of the debts over a three to five year period.   We will perform the means test analysis of your income and advise you as to your eligibility to file under each chapter.  Debtors with income that varies over the year or that has recently declined significantly may find they must wait for some period of time if they wish to file under Chapter 7 instead of Chapter 13.  We will help you with that decision.  The current income limits for step one of the means test for Iowa are listed below.

                Household size                                                                     Income

                        1                                                                                                                 $37,759
                        2                                                                                                                     $50,581
                        3                                                                                                                     $59,331
                        4                                                                                                             $69,723

                Add $6,900 for each person above 4.

COMMON BANKRUPTCY MYTHS

These are some common bankruptcy myths, often used by creditors to delay you from filing as long as possible, so that they can continue to charge you interest, penalties and late fees are:

*  You can't file for bankruptcy anymore.  Congress changed the law.  FALSE!  This is what your creditors want you to believe and too many people do, but it isn't true.  Congress  did make changes to the Bankruptcy Code in 2005, but you can still file.  There are some additional items I will need to prepare your filing and you will need to take a pre-filing counseling course, but YOU CAN STILL FILE!

* You will lose your job if you file.  Federal law protects you from any such action by your employer.  If a debt collector tells you this, they are lying and just trying to scare you out of filing.

* It is illegal to file for bankruptcy.  False.  Bankruptcy is a legal process and is your right under federal law.  Don't let your creditors steal your rights away from you.

* You will still owe the creditor even if you file for bankruptcy.  This is almost always false and they know it.  This is only true if their debt is found to be non-dischargeable by the bankruptcy court.  Almost all debts owed to credit card companies will be discharged in bankruptcy under Chapter 7.  If you owe a creditor a secured debt, such as a car or furniture loan, the lien on the property may survive the filing, but that only applies to secured debts.

* I won't ever be able to get credit again if I file for bankruptcy.  It is true that filing for bankruptcy will be a black mark on your credit report that can stay there for up to ten years.  However, if you are considering bankruptcy, your credit rating is probably already severely damaged and hurting it shouldn't be your biggest concern.  Getting your life back in your hands not your creditors should be your biggest concern.  You will be able to rebuild your credit after bankruptcy, by paying your on-going debts on-time, such as home and car loans, utility accounts, furniture loans or other obligations post-filing.  Many clients receive offers for credit cards shortly after filing from lenders who specialize in offering credit to people post-bankruptcy.  But what got you to this point isn't a lack of credit, it is too much easy credit.  If you are missing payment on credit cards, falling behind on your mortgage, or having wages garnished or vehicles repossessed you will almost certainly never rebuild your credit until youget yourself out from the mountain of debts you are now under. 

* Only deadbeats file for bankruptcy.  I understand how difficult it is to even consider filing for bankruptcy.  Often I see people in tears when they explain everything they have done to try avoid filing, but it just isn't working.  Unfortunately many people believe that only wild spenders need to file for bankruptcy, but in my experience this just isn't true.  There are many factors, most of them outside your control, which cause people to need to consider bankruptcy. Rising prices for gas, rent or mortgage payments, utilities, food and medical care can take every last penny from your budget each week.  Being just a day late with a credit card payment can cause the interest rate to skyrocket.  Often the cause of my client's problems started with the loss of a job or other medical problems and months if not years later they find there is no other way out of the financial problems they are in.  If you are you having trouble making even the minimum payments on your credit cards debts with late fees, penalties and sudden interest rate changes then it is time to speak to someone.  If you are you living week to week, paycheck to paycheck, juggling one bill against another, falling further and further behind, with little or no chance to ever catch up it is time to get relief.  Constant harassing collection calls, garnishments, repossessions, and even foreclosures can put a great deal of stress not only on you, but on your entire family as well.      

WILL THIS STOP THE CONSTANT COLLECTION CALLS, GARNISHMENTS AND OTHER COLLECTION EFFORTS?

When you file for bankruptcy, creditors must stop all collection activities.  Period.  Phone calls, collection letters, pending lawsuits, garnishments, repossessions and even foreclosures are all stopped by the bankruptcy filing, no matter how far along they are.   There is an “automatic stay” of all these actions that starts once the bankruptcy is filed and continues until the case is closed or the stay has been lifted by the court.  Creditors must apply to the Bankruptcy Court to restart any collection activities, such as a foreclosure or repossession, and you will be given a chance to be heard before they can restart those actions.  Often this can give you the time you need to come up with a plan to keep your property such as a car or even your home.  If money has been garnished from a bank account or your employer, we can often help you get some or all of those funds returned.  I will advise you as to your rights and explain exactly what your options are.

THERE IS A LAWSUIT OR JUDGMENT AGAINST ME.  IS IT TOO LATE TO FILE?

No it is not too late to file.  Bankruptcy can help even if a one or more of your creditors has filed a law suit against you, or even has received a Court judgment against you.  The bankruptcy will stop all collection activities, including lawsuits, whether your creditor has gotten a judgment against you or not.  Even if lawsuit has been filed or a judgment has been entered, that can still be included in the bankruptcy.  Pending lawsuits, garnishments, repossessions and even foreclosures are all stopped by the bankruptcy filing, no matter how far along they are.   The “automatic stay” of all these court actions starts once the bankruptcy is filed and continues until the case is closed or the stay has been lifted by the court.  We will help to stop these collection activities and see that those debts are included in your bankruptcy filing. 

Many clients are concerned that they will lose some or all of their property if they file for bankruptcy.  Often their biggest concern is their home or their car.  The Bankruptcy Code is designed to give you a fresh start free of most if not all of your debts.  In addition, the Code allows you to keep certain “exempt” assets so that you won’t have to start all over with nothing after the bankruptcy is finished.    For many people the exemptions will allow you to retain most if not all of your assets.  There are important exemptions for your home, cars, wages, bank accounts, pension funds, home furnishings, clothing, wedding rings, tools and equipment, and tax refunds.  Certain exemptions are unlimited, while others are not.  Some exemptions are limited by how long you have lived in Iowa, or when you acquired the property.  We will carefully review your situation and provide you with information about the exemptions available to you, and advise you as to your options for any non-exempt assets.  The exemptions available to most Iowa debtors are shown. 

WHAT IS THE "MEETING OF CREDITORS"?

The "Meeting of Creditors" is a a short hearing you must attend as part of the bankruptcy process, where the Chapter Trustee appointed by the Court will ask some questions regarding your filing.  It idesigned to make sure all the information in your filing is complete and that no assets or other information has been left out of the bankruptcy filing.  I will be there with you at the meeting, and can advise you as to the likely questions before the meeting.  The meetings are generally very short, lasting only a few minutes once your name is called.  Creditors have the right to attend and ask questions, but very few do.  It may sound scary but they go very quickly and I will be there with you through it all to answer any questions you have. 

HOW LONG DOES A BANKRUPTCY TAKE?              

A Chapter 7 bankruptcy filing will take about 3-4 month to complete.  During that time your creditors are prohibited from contacting you or trying to collect any listed debt, without first getting an order from the bankruptcy court allowing them to proceed with a repossession or foreclosure.  Approximately 30-40 days after your bankruptcy is filed you must attend a "Meeting of Creditors" where a Chapter Trustee appointed by the Court will ask you questions regarding your filing.  The whole process only lasts a few minutes once your name is called.  Creditors also have the right to attend and ask questions, but very few do.  After the meeting of creditors is over, there is a 60 day waiting period for creditors to file objections to your discharge before the discharge is granted.

A Chapter 13 filing will last for up to five years after your repayment plan is approved by the Court.  We will review your financial situation and prepare a plan for submission to the Court.  During the entire time a Chapter 13 case is open your creditors will still be bound by the automatic stay and will not be allowed to take any further collection activities without first obtaining court approval.   If problems arise during the Chapter 13 plan, and you are unable to continue making the payments, you may be able to convert the case to a Chapter 7 plan depending on your circumstances.

WHAT IS A DISCHARGE?

A discharge of your debts relieves you from any further personal liability for the debts that are discharged.  Your creditors are prohibited from taking any further actions to collect a discharged debt.  In a Chapter 7 case your discharge is generally entered about 3-4 months after your case is filed, and the case is then closed.  In a Chapter 13 filing your case will remain open during the 3-5 year period of administration and the discharge will be granted at the end of that time, if you have successfully completed your repayment plan.  The discharge does not remove liens against secured property, so home mortgages and vehicle loans will survive the discharge.  Generally, if you want to keep your house or your vehicle, you will need to repay those debts.  Not all debts are included in the discharge.  Debts for income taxes, student loans, child or spousal support, criminal fines, debts due to operating a motor vehicle, boat or airplane while intoxicated or under the influence of drugs, debts obtained by fraud and debts which were not listed in your filing are some of the most important debts which may not be included in your discharge.   We will carefully review your bankruptcy filing with you prior to filing, and will fully advise you as to any of these types of debts you may have which may not be discharged in the bankruptcy filing.

I OWE MORE ON MY HOUSE OR VEHICLE THAT IT IS WORTH.  WHAT CAN I DO?

Debts which have property such as a home, a car or a boat or motorcycle are called secured debts.  You will have several options available as to your secured debts.  Generally they are as follows:

1. Keep the property and continue to pay the full amount owed to the creditor.  This can be done by simply continuing to make your loan payments.   This is often called a “ride thru”.  Your creditor may want you to sign an agreement that will make the debt survive the bankruptcy discharge called a “reaffirmation agreement”.  We will discuss the effect of such an agreement with you and advise you as to whether this would be in your best interests.
2. Give up the property to the creditor.  If you owe a lot more on your home or vehicle than it is worth, this may be your best option.  You can turn the home, car or other secured property over to the creditor and the bankruptcy discharge will relieve you of any further personal liability for the debt.  No matter what your creditor sells the property for, you won’t owe anything further.  This is often a very difficult choice for debtors to make, even when it is in their best interests.  It will be your choice to make, and we will provide you with as much information and guidance as possible to help you make a decision in your best interests.
3. Buy the property from the bankruptcy for its fair market value, and discharge any remaining amount due to the creditor.  If you owe far more for your home, vehicle or other secured asset than it is worth, this can be a very valuable option.  Often we see people who have rolled a car loan over several times into new vehicle  loans and they may have a vehicle that is worth only half what they owe against it.  If you can arrange to pay the creditor in full for the asset’s current fair market value, you can wipe out the rest of the debt owed against the asset (usually a vehicle).  Generally, you will have to pay the creditor in one payment for the asset, and we can advise you as to how to negotiate the amount and how to come up with the funds to make the required payoff.

SHOULD I TAKE MONEY FROM MY 401K, PENSION PLAN OR HOME EQUITY TO PAY MY CREDITORS? 

No, not without speaking with me first!  This is often the worst mistake you can make.  They are probably the most important, if not the only form of savings you may have for the future.  Those assets will usually be yours to keep in the bankruptcy filing as exempt assets.  Most Americans have not saved nearly enough for their retirement and the only assets they have for retirement are often 401K plans, limited pensions and equity in their homes.  If you take funds out of these accounts to pay your creditors, you will jeopardize your and your family’s financial future.  Your credit card companies and other creditors will survive if you don’t pay them off by taking money out of your home or pensions, you may not.