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The information below is intended as general statements of the law and advertising only. The facts of each case may lead to a different result than suggested below. It is advisable that you do not file bankruptcy without discussing your particular situation with an attorney.
Q: How do I know if Bankruptcy is the right choice for me?
If you are stuck with the choice between buying groceries for your children or paying on a past due credit card you may be at a place where you need to seriously consider the bankruptcy option. You may also need to consider bankruptcy if a garnishment is threatening your ability to pay rent/mortgage, groceries, . . ., your basic living expenses, or if you stand to lose your home in a foreclosure. The bottom line is most folks who file bankruptcy do so because they have undergone a financial catastrophe like divorce, serious illness, or the loss of a job.
The decision to file should only be made after consulting with an attorney and carefully considering any alternatives.
Q: Can I still file for Bankruptcy even with the new laws?
A: Despite what you may have heard, many, many people are still eligible to file for a Chapter 7 bankruptcy without a repayment plan to secured creditors. If you are eligible for bankruptcy you can receive protection the very day you file and may be able to get your discharge order (the order ruling that you do not have to pay your debts back) with in 4-6 months of filing.
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Q: What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
A: To be eligible to file either a Chapter 7 or a Chapter 13 bankruptcy case, you generally must show that you cannot pay your bills as they become due.
A Chapter 7 bankruptcy case is referred to as a "liquidation" case because it requires you to surrender any non-exempt property (which usually involves things like the boats, the four-wheelers, the snowmobiles), to the bankruptcy trustee who will "liquidate" (sell) the property and take the money to pay your creditors. In reality, many people who file for Chapter 7 don’t typically have much if any non-exempt property, so they often don’t lose anything.
From the day you file until the day you get your discharge order (the order indicating you don’t have to pay your bills back), is usually about 3-4 months. To be eligible for a Chapter 7, a debtor must typically have a monthly budget with an income no greater than their living expenses.
If you earn more monthly income than your basic living expenses require, but still fall short of paying the rest of the bills, you may be eligible and/or required to file for a Chapter 13.
A Chapter 13 bankruptcy case is referred to as a "reorganization" case as it may give a debtor the right to reorganize debts and pay back what they can while still getting the protection of bankruptcy. A Chapter 13 involves a repayment plan to creditors where you be required to make monthly payments to the bankruptcy trustee, who will in turn disperse the money to your creditors. This repayment plan will typically last 3 to 5 years. The amount you have to pay to the trustee will depend on how much “disposable” income you have available after your necessary living expenses. After completion of the plan, the court will then discharge you from your debts.
Whether or not you have to file a Chapter 13 instead of a Chapter 7 will largely depend upon a “means test” calculation, which is a result of the changes made to the law. Basically, the initial part of the means test compares your current monthly income to the median income of the same sized household in your county for the last year, and if you make more than the median income, you may be required to file a Chapter 13 instead of a Chapter 7 bankruptcy.
If you are above the median income a number of additional calculations will be applied to your situation in determining the remainder of the test. The bottom line is the means test can be fairly complicated and it is strongly advisable that you consult with an attorney for help applying the test to your situation.
Q: What protection will bankruptcy give me?
A: The day you file your bankruptcy, under Chapter 7 or Chapter 13, an "automatic stay" takes effect, which is an order from a federal judge ordering all of your creditors to immediately stop collection calls, lawsuits, garnishments, foreclosures and other collection activities! You get the protection you’re looking for in bankruptcy from day one!
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Q: What paperwork is required to file bankruptcy?
A: Filing bankruptcy requires a lot of information. In providing information to the Court you must provide truthful, complete, and accurate information. If you fail to do so it is possible that you could be sanctioned by the Court, your case could get dismissed, or in the worst case you could get prosecuted for Federal Bankruptcy Fraud.
To file bankruptcy generally requires documentation including but not limited to a copy of every bill recieved in the last 90 days, 2-4 years worth of tax returns, proof of income including paystubs from the prior six months, a budget including your historical and projected income and expenses, copies of promissory notes or loans, . . ., and so forth.
It is important that you list every debt and every asset. You will also have to answer several questions about your financial dealings over the last two years particularly issues dealing with the transfer or sale of any personal or real property.
Before you file you MUST participate in a consumer credit counseling class that can be done over the phone or online. You must provide a certificate to the Court with your Bankruptcy petition.
Q: Can I keep my home if I file bankruptcy?
A: In the state of Idaho, a bankruptcy debtor may exempt up to $100,000 of equity in his/her home that they live in. This means that if you have less than $100,000 of equity in your home the trustee is typically not going to have an interest in your home. As long as you are current and stay current on the mortgage during and after the bankruptcy you may very well be able to keep your home in a Chapter 7 case. Doing so may require entering into a “reaffirmation agreement” which plainly put is a new loan agreement. A reaffirmation agreement will prevent your mortgage loan from being discharged and should be carefully considered, usually with the advice of an attorney, before you enter such an agreement.
If you are behind on your mortgage before you file for bankruptcy, it may be possible for you to take care of the arrearages in a Chapter 13 plan, so that you can still keep your home.
Q: What other property can I keep if I file?
A: At the time you file bankruptcy any property you owned or had an interest in prior to or on the date you file is legally considered "property of the estate". Generally, a bankruptcy debtor can only keep property of the estate that is deemed "exempt". Non-exempt property must be surrendered to the bankrutpcy trustee who will in turn sell it and distribute the proceeds to your creditors. If you wish to keep non-exempt property you will generally have to "redeem"-(buy it back from the estate) the property from the bankruptcy trustee.
If property is exempt you can keep it. In Idaho Exemptions are governed by statute. The most common exemptions for a married couple in Idaho is includes up to $100,000 equity in their home, up to $10,000 worth of household goods, two vehicles with no more than $3,000 of equity in each*, and the balance in their pension account/s. Some other limited exemptions are also available.
Q: What happens to property I have given as a collateral on a loan?
A typical situation involving collateral arises when you buy a car via a loan from a bank. At the time you took out the loan you normally would have signed a loan contract that gives the bank the right to "repossess" the car if you ever get behind on the payments or if you otherwise fall in default. The bank is what is referred to as a "secured creditor".
Generally, if you want to keep your car or some other piece of property that is collateral for a loan in bankruptcy you still must pay the secured creditor back as agreed in order to keep it. Practically speaking you may be able to simply keep making the normal payments and keep the vehicle. If the creditor is okay with this you can retain your property and pay as agreed, if you eventually pay the loan off the property is yours as if the bankruptcy never happened.
In many situations however a secured creditor may not be willing to let you retain and pay on the property unless you "reaffirm" or sign a new loan contract. Reaffirmations give you additional responsibilties and should only be signed with the advice of an attorney and they do require Court approval.
However, if you get behind on the Loan during the bankruptcy the bank will likely have the right to repossess the car (after they have recieved permission from the Court). Whether you retain and pay or reaffirm on a secured loan a secured creditor always has the right to reposses without the Court's permission if you stop making payments after the case is closed.
If you decide not to pay on a secured loan and you just want to give the property back the bankruptcy will allow you to surrender/return the property and the creditor will still be discharged on the debt and the secured creditor will have no further recourse against you so long as you have not reaffirmed the debt.
At the time you file your bankruptcy you will be required to file a document called a "statement of intention" notifying the Court and your creditors what your intent is as to each secured creditor and the respective collateral. You then only have a certain amount of time to to carry out your intent.
Q: What debts will not be discharged and which ones will?
A: A discharge order is an order signed by the Federal Bankruptcy judge saying that you are forever discharged from repaying your debts. Generally student loans, child support/alimony, taxes, and fines and restitution are not eliminated through the bankruptcy.
However, most all other debts including bank loans, mortgages, credit cards, medical bills, payday loans, . . ., are typically all dischargeable.
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