The Top 70+ Frequently Asked Questions at Our Office
This is not legal advice. Each individual case is
different, but these are the “standard” answers to common questions. If you
have a question about your case, you need to ask your Attorney for an answer
based on the facts and particular circumstances of your case.
The Top 5 Questions:
Q1: We seem to be losing
our home and car and we just don’t know whether or not to keep it or let it go.
Whether or not to keep a home should always be a financial
decision, not an emotional one. A car can be replaced at a normal interest rate
about a year after a Bankruptcy discharge and a home 3 years after the
foreclosure sale or 2 years after discharge under FHA, HUD and VA rules. My wife
Nancy often finances these loans. For 2 years she was President and prior to
that Treasurer of the Mortgage Bankers Association. We often buy more home or
car than what we need. A 2-year-old hail-damaged Ford may not look as nice as
the Lexus, but it may last the same miles, serve its purpose and cost thousands
less.
It’s common to see someone paying $200,000 for a home that is
only worth $150,000 or less. The $50,000 difference may fund a college degree or
retirement. If you owe more than the home is worth, then you are probably better
off letting a home go back. The average time it takes nationwide to foreclose is
about 630 days. If a person answers a foreclosure and issues discovery, it will
take much longer. During that time, people often live in the home without paying
the mortgage, taxes or insurance and save thousands from staying in the
property.
It is unlikely to ever find a lender that would refinance a home
with negative equity. Also, if the rate is much higher than normal, you may be
much better off letting the home go back. If the home has a second mortgage, a
Chapter 13 can strip away a mortgage where a Chapter 7 would not be able to
eliminate the second mortgage. It isn’t unusual to see a person better off by
filing a Chapter 13 than a Chapter 7 if he is stripping away the second mortgage
in the Chapter 13. The Chapter 13 will discharge more debt than the Chapter 7
will, and may only have $100 per month payments.
If the home or auto does not meet your needs or if it is too
expensive, it can be replaced. Cashing in your retirement or mortgaging a home
often shifts the burden of retirement to your children or other taxpayers. The
bank that made the predatory loan or car sale should bear the burden of the bad
debt, not the public.
Q2: Should I file
Bankruptcy? A person should file a Bankruptcy if, and only if, he or she
can’t pay bills as they come due or is about to lose property or have property
attached by the Court. A Chapter 7 Bankruptcy normally has less impact than a
foreclosure or repossession on credit. A Chapter 13 will takes 3 years if your
income is less than the average income, or 5 years if above average, but it has
more powerful tools and may cost less in the long run if you are stripping a
second mortgage than a Chapter 7.
Very few people lose property when they file Bankruptcy. For
2011 in Kentucky, you are allowed to keep about $3,450 equity in a car, $10,775
in personal household goods, $21,625 in a home, and at least $1,000 in any
property that you choose in a general exemption plus ½ of the unused portion of
the home exemption. The exemptions are adjusted in April every year. For married
couples filing jointly, these exemptions are doubled. See our website for the
current amounts.
To stop a foreclosure in Kentucky with a Chapter 13, you only
need to cure the arrearage within a reasonable time period, and you may take up
to five years.
Only seven magical items can be paid in a Chapter 13 but not
discharged: Child support, alimony; taxes less than 3 years old; federally
guaranteed student loans; debts due to fraud; debts due to drunk driving; debts
due to intentional injuries; and criminal restitution. There are exceptions to
even those, such as student loans can be discharged if they are an undue
hardship. When in doubt, always list the debt when filing: It may be
bankruptable due to an exception. If you have other questions about filing a
Kentucky Bankruptcy, e-mail us
Q3: What does it cost to
file Bankruptcy? Court costs are about the same, $310 for a
Chapter 7 and $285 for a Chapter 13, plus postage for sending the plan to the
Creditors ($25), so both filing fees are about $310. Uncontested Chapter 7
Attorney fees at our office will run about $1,000 for a single,
$1,200 for a couple, plus any filing fees, but expect fees to increase. They
have been the same for 8 years. About 5-10% of the cases may require additional
work for a motion to redeem, strip a judicial lien, etc.
Chapter 13 Attorney fees are set by the Court and the Court is
presently paying about $2,750 in Western Kentucky for Chapter 13 through
confirmation and the schedule of allowed claims. This is paid to the Attorney as
you pay the Court and normally only decreases what is paid to unsecured
Creditors.
Q4: What happens when I
file? When you file a Bankruptcy, a Court order called a stay goes into
effect immediately, stopping all collection activity. This includes stopping
foreclosures, attachments, garnishments, and Creditors from calling you. The
sooner you come in to the law office, the sooner you can get relief—and the more
you can save from Creditors. You will have a 341 hearing within about 4 to 6
weeks after the Bankruptcy is filed. When the Bankruptcy is finally over, a
discharge is issued. This is a final and permanent order that permanently stops
all collection activity and declares the debts to be non-collectable. Bankruptcy
does not normally get rid of a security interest that you gave to a Creditor
such as a mortgage or a standard car lien, but it can destroy or modify some
mortgages and liens. It makes you no longer liable for the debt if you
successfully get the discharge.
Q5: I live in Pikeville
(Eastern District). Can I file in another District (such as Louisville in the
Western District)? A lot of this answer depends on whether or not you
have real property and if you are living in the Western District at the time of
filing. Procedural rules vary from district to district making it more or less
difficult, expensive or time consuming. It normally costs less to file
Bankruptcy in the Western District, etc.
Jurisdiction and Residence are based on your intent to live in a
place—so, if you say you live in the Western District and you have substantial
contacts there such as you live with family, you vote there or have a driver’s
license with a local address, you probably do reside there. Many people live in
an area because of school or work but have their real contacts elsewhere. For
instance, a serviceman or student in Alaska does not generally lose his right to
file in Kentucky if they are from here. If you move to the Western District from
another state, the other states exemptions may apply if they are lower.
The Other 70 Questions:
1) Can I plan my
Bankruptcy? Of course! Good planning is why you want to read this manual.
Planning allows you to save more money and property and gives you a workable
budget for success. For instance, you may wish to delay filing your Bankruptcy
to insure that your taxes are over 3 years old and dischargeable. This is just
like taking proper tax exemptions when you file a return. There is nothing
illegal or improper with properly taking exemptions. But you can become too
greedy in converting assets. Always involve your attorney in planning your
Bankruptcy. Waiting a few months until your tax debt becomes bankruptable is
acceptable. Converting large amounts of corporate assets into your retirement or
going on a spending spree with credit cards just prior to filing isn’t.
2) Which Bankruptcy is
right for me: Chapter 13 or Chapter 7? A Chapter 13 is like a bill
consolidation loan, and you normally file it to keep property, discharge or
control certain debts, and stop foreclosures. A Chapter 13 will discharge a
wider variety of debts. A Chapter 13 will require you to budget. Budgeting is a
skill the court is trying to teach the Debtor in a Chapter 13, so problems do
not reoccur. A Chapter 7 is generally used to wipe out unsecured debts and
surrender property you don't wish to keep. Both stop garnishments and Creditor
harassment. If you earn more than the average wage for your state and size of
family, you will often be required to file a Chapter 13 due to the means test.
Chapter 13 cases are becoming more popular. Over 95% of all
Chapter 13 cases used to fail because they became unaffordable in Kentucky. But
now, 10% and lower repayment plans are often approved in Chapter 13 cases if
that is all the Debtor can afford. Chapter 13 plans are now more successful,
especially if you insure you include often overlooked expenses in your budget.
See our website for a list of commonly overlooked expenses. Often an attorney
may want to file a Chapter 13 because he will earn more than he would in a
Chapter 7. Usually, the only times you want to file a Chapter 13 are 1) when you
have already filed a Chapter 7 and can't yet file another Chapter 7; 2) you have
so much property and equity that a Chapter 13 is necessary to keep property or
3) you have certain non-dischargeable debts that require repayment in a Chapter
13.
You may have to file a Chapter 13 if you have so much disposable
income (after you pay normal monthly living expenses) that you can repay
something to your debts. A Chapter 13 can no longer be used to discharge certain
unusual debts such as trust taxes. But it has always been used to repay income
taxes less than 3 years old, child support, student loans, or to protect
cosigners.
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. Married couples with valuable assets, such as over $40,000 in equity
for a home or over $7,000 equity in cars (these amounts are for Kentucky), may
want to choose Chapter 13. Each state can have different rules for what property
can be kept. Kentucky uses the Federal exemptions. Indiana allows far less
property to be kept. Florida and Texas allow far more.
3) Why file a Chapter 7?
If you have substantial unsecured debts, little equity in property and an
average or less disposable income, 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 most Debtors
lack any substantial equity in any property that exceeds the exemptions allowed.
4) Why file a Chapter 13?
You may want to file Chapter 13 if you have secured debts, are threatened with
foreclosure or repossession, if you filed Chapter 7 less than 8 years ago, if
you wish to protect a cosigner, or if you have certain debts that are not
dischargeable in a Chapter 7 but are payable or dischargeable in a Chapter 13.
Taxes and child support (priority debts) can be paid first in a Chapter 13,
before secured Creditors. This gives you the advantage of not losing a car or
property but having all of your payments go to the IRS or child support at the
start of the case. If a debt has to be paid for a term longer than the plan
(such as mortgages or student loans), the Debtor can pay full payments directly.
This may allow the Debtor to bump up student loan payments and nearly pay off a
student loan during a 13 at the expense of unsecured debt.
5) Can I convert from a
Chapter 13 to a 7 or from a 7 to a 13? Yes, a Chapter 7 or 13 can be
converted. There is an absolute right to dismiss a Chapter 13. Conversion of a
Chapter 13 to Chapter 7 has a lowered level of scrutiny. Dismissal of a Chapter
7 or conversion of a Chapter 7 to Chapter 13 is only with permission. Very few
people convert from a 7 to a 13 unless they have been audited by the Trustee and
caught with improper transfers, excess property or excess disposable income. If
you get caught, it is generally too late to convert because the panel Trustee
earns a 25% fee from property he can locate, seize and sell for the benefit of
Creditors.
If you file a Chapter 13 you have a good chance that you will
have to convert from a 13 to a 7. Over 3-5 years, you are likely to miss
payments and have a Chapter 13 dismissed (or have to re-file). In a Chapter 13,
you will have to file an annual budget in our district and lose your income tax
refunds if the plan is less than 100%. Many Chapter 13 cases are never finished
and are converted into Chapter 7 cases. If you are close to completing the plan,
you may be granted an early hardship discharge, but there are 3 factors that the
court considers in any application for an early discharge that must be proved.
Primarily the Debtor must show that the disability to complete the plan was not
his fault. Plans can also be later modified if incomes change.
6) What 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 a property from foreclosure. This is
jokingly referred to as a “Chapter 20”. However, it saves the Debtor money by
insuring that only the mortgage is repaid in the later Chapter 13. Since the
Debtor just got a discharge in the Chapter 7, there is no need for a second
discharge. 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 in stopping a foreclosure. Although you have
the right to dismiss a 13 after you cure the arrears, you may not want to
dismiss and then have to face unsecured Creditors.
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 to handle taxes or student loans. This may stop wages or property from being
attached and allow you to obtain freedom from the debt by waiting for a
disability discharge of a student loan or currently uncollectible status of an
income tax debt.
7) How 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 and that you are required to take the second class (Debtor
education). A hearing will be held about 5 weeks after you file. Chapter 13s
normally take 5 years, but if you earn less than the average income some
districts will consider a 3 year plan.
8) What are the most common
mistakes I can make when filing? Not showing up for your hearing and not
listing all of your debts. Fail to show up at the hearing, and your case may be
dismissed. Fail to list a debt, and you may have to reopen your case after
discharge to add it, with considerable cost and time spent. The best policy is
to list all debts and assets. List every debt, even if you think it is
non-dischargeable. It may be discharged anyway. You may wish to list large
utilities, but you may be required to make a deposit equal to one month’s
service if you do discharge a utility. Cable is not a utility.
9) How do I qualify for
Bankruptcy? Can I not be approved? You qualify for Bankruptcy if either
your outgo exceeds your income or your liabilities exceed your assets. If you
don't qualify, we will tell you when we type up the Bankruptcy. It is very rare
not to qualify. In my first 15 years of practice, I had one person not qualify
for a Chapter 7. You only have to be a US citizen, reside in the state you file
in, and not have filed within time periods (you can’t file two Chapter 7s within
8 years of each other).
10) What 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 can normally be easily corrected by
amendment. 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 convert it from a Chapter 7 to a Chapter 13. Repayment plans are
often modified. Occasionally a case will be dismissed because of fraud, but not
being approved is very, very rare.
11) How often can I file?
You can file a Chapter 7 eight years after your prior Chapter 7 was discharged
(prior to 10/2005, the time limit was six years). You can file a Chapter 13 two
years after a prior Chapter 13 discharge. You can file a Chapter 7 four years
after a Chapter 13 discharge. You can only have one Bankruptcy going on at a
time.
12) If I 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 and by
deleting inaccurate information from your report.
13) Can I file without an
Attorney? Yes. You can file a Bankruptcy yourself. This is called “filing
pro se”. You can also do dentistry on yourself, but we don’t recommend it. Doing
your own case is a very bad idea. First, if you are in a Chapter 13, the money
you saved by using an attorney will only be used to increase the amount you pay
to the unsecured Creditors. There is no “savings” to pro se filing a Chapter 13.
You only cause yourself more work and lose the expertise of the attorney to help
you plan and process the case. This book alone won’t give you the 20 years of
experience and training you need to file. Use this manual to educate yourself,
find a good Attorney and discuss issues.
There are also other problems if you file pro se. If you file a
reaffirmation and represent yourself, it must be approved in a hearing by the
Judge, and that will mean extra hearings and time for you. Consider the time and
risk involved. You often lose far more in Court than what the Attorney would
have cost—plus there is the extra time and effort on your part doing the work.
You are normally better off working overtime to make it up.
14) What about a Bankruptcy
Mill? Some firms have one experienced attorney that never or rarely meets
clients. To give you quality representation the attorney has to have experience,
knowledge and spend time meeting you to analyze your needs. Some firms file
thousands of cases by spending on advertising, and then switching you to a
paralegal or a junior attorney with little experience. You often pay the same
price as hiring the experienced attorney. You end up paying more or losing
property.
Many people have lost thousands of dollars through intentional
scams or just plain poor work. Non-Attorney Bankruptcy petition preparers are
barred by law from providing you with any legal advice. 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 Bankruptcy system.”
15) Are you a real
Attorney? Yes. I have been filing Bankruptcy cases for over 20 years, and
I have filed thousands. I have worked for banks and financial companies and as
an assistant attorney general assigned to the tax department. I personally
prepare every case. I never have a secretary or paralegal prepare the petition.
16) How much do you charge?
We charge a flat fee of $1,000 for doing a personal and $1,200 for a joint
uncontested Chapter 7 Bankruptcy. Court costs are $310. Your total cost as an
individual is about $1,400 including credit counseling, and $1,600 as a couple.
Chapter 13 Court costs are $285 plus $25 for mailing. In
Kentucky and most states, the Attorney fees are normally set as a flat fee.
There is no shopping for a lower Attorney fee in a Chapter 13. Attorney fees in
a Chapter 13 mean less is paid to unsecured Creditors.
17) Can I pay you in
payments? Filing fees must be paid before we file any petition. Filing
fees can be paid in installments, but our office will not do that. If you pay
the filing fee in payments you are more likely to have the case dismissed. For a
Chapter 13, you only need to pay the filing fee before we file the petition.
18) How do I get to your
office? Do you have an office in Lexington? No, we don't have an office
in Lexington, but we are only about an hour away from Lexington and Covington
and only 2 hours from Bowling Green or Owensboro. Take I-64 to Louisville, and
then north on the Hurstbourne Exit. We are at 800 Stone Creek Parkway, Suite 6,
40223 just behind the Barnes and Noble Bookstore on Hurstbourne in the office
condos.
19) What paperwork do I
need to bring to my Attorney? There is a list of required documents on
our website you may download. Bring the names, amounts, account numbers, and the
proper addresses of all of your Creditors if you can’t input the debts on our
website. Credit bureau reports have the addresses on them. We have the
ability for you to input your information on our website, but we will still need
your last two years of tax returns, last six months of paystubs and bank
statements, and copies of your car titles, deed and mortgages. See our website
for audios, PowerPoints, and manuals
20) How can I get a copy of
my credit report? You can get a free copy of your report at www.annualcreditreport.com
and 1–877–322–8228. Please don’t pay for it unless you recently got
one within the prior year. You can get a free credit report if you have been
denied credit, are unemployed, are a victim of fraud, or are on welfare (or if
you live in Colorado, Georgia, Massachusetts, Maryland, New Jersey or Vermont).
To get one for a small fee (if you don't) without going through a "middle man"
by contacting any of the 3 major reporting services below. They may charge
between $3 and $8.50 depending on your state of residence.
1. Experian (TRW) at 1-888-EXPERIAN (1-888-397-3742) allows you
to charge your credit report to your Visa or MasterCard over the phone.
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 $8, you can get an
immediate report online from Equifax at:
http://equifax.com/resources/fcra_info_rights.html
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.
21) Can I file jointly with
my spouse? Does my spouse have to file or sign if I want to file individually?
Yes, you can file jointly or separately. Sometimes a spouse may want to file
separately to delay a foreclosure even longer. The first spouse files the first
Bankruptcy and delays the foreclosure 6 months or more, and then the second
files just prior to the sale and the second Bankruptcy delays the foreclosure an
additional 6 months to a year or more.
Your spouse doesn't have to file with you, but if most of your
debts are joint debts, he or she may want to file with you. There are few
reasons for a spouse to file if the debts are not in their name. If you are
filing a Chapter 7 and the bills are also in your spouse’s name, he or she
should generally file. (Cosigners are protected in a 13 with 100% plans, but are
not in a Chapter 7.) There is often a minor additional charge for a spouse
filing, but it is far less than being charged for a second case.
22) Will it affect my
spouse’s credit? Is he/she 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 jointly responsible 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 Bankruptcy.
Unless your spouse has signed to be legally responsible, they
are not responsible. Many credit card companies will argue that she is
responsible, just like many young men on a Saturday date t will say anything
that works. Collectors are often paid a commission, which causes abuse.
They may even put a “no pay” on her credit report if the amount
is unpaid; however, she may ask any credit 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 is only legally responsible if she signed to be responsible. If
they damage her credit record, it may be grounds for a lawsuit.
23) Will my cosigners be
protected? Cosigners are protected only if the Chapter 13 pays the full
amount of the co-signed debt. If the plan pays the debt completely, the cosigner
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 is not paid completely. In a Chapter 7, the cosigner 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 cosigner personally.
24) Can I file a personal
Bankruptcy and not have it affect my business? If you completely own the
business, the business is merely your asset. If it has a substantial value, it
may belong to the Court like any other asset. If the business is co-owned, such
as a partnership or corporation, then it becomes almost impossible for Creditors
to reach assets for your personal debt. You may want to file a Chapter 7 to
officially terminate a business that is losing money, but normally you would
merely dissolve a failed business without a corporate Bankruptcy. If your
business files Bankruptcy, it generally doesn’t affect you unless you are
personally responsible for the debts of the business.
25) Can Bankruptcy stop
foreclosures, wage assignments, help me get my license back from an uninsured
accident, stop evictions, a judgment, or remove a lien? Yes.
26) What will happen to my
bills? When you file a Bankruptcy, a Court order called a stay goes into
effect that keeps Creditors from legally collecting from you. At the end of the
case, a permanent court order called a discharge is entered. 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 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 violated the order. 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 put
anything on paper after you file, but they may make phone calls hoping you pay
or sell the account.
27) What 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 them (that is why correct addresses are so important),
but some Creditors never get these notices and continue to bill you. You should
make copies of your hearing notice. If you get a bill 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. We can file a motion for contempt with the Judge, and we may also be
able to sue for a violation of the Fair Debt Collections Practices Act.
28) Do I have to pay my
bills during the Chapter 7 or 13? No. Don’t pay any bill until after you
file a Chapter 7 and until you have negotiated with the Creditor to keep the
property. 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 retain that property
and 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 take the collateral until the stay is
terminated. If no reaffirmation is filed within 45 days after the Bankruptcy is
filed, the stay automatically terminates and the bank can take the car. The
Creditor may also file a motion to terminate the stay after the Bankruptcy is
filed. Bankruptcy stops your obligation to pay, but the Creditor still has a
lien and rights in the property. Bankruptcy can affect liens of some Creditors.
You often quit paying for items when you file so that you have
time to decide on repayment, redemption, or surrendering. I rarely have a bank
refuse to agree to repayment, but you don’t want to make payments if they aren't
going to let you keep the property. Singing a reaffirmation will make you liable
for any deficiency if you have it repossessed later. In rare cases, with people
who are never going to repay, the bank may refuse to reaffirm. Some credit
unions may refuse to reaffirm a car or mortgage unless you also repay their
credit cards. In cases like this, you may want to redeem property instead. That
is why you don’t want to make 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. A Chapter 13 can be filed to force Creditors to allow you
to keep property, so they will often negotiate to cure arrearages over time.
29) Who notifies the
Creditors and bill collectors? After the Bankruptcy petition is filed,
the Court mails a notice to all the Creditors listed in the schedules. This
usually takes a week.
30) Do I have to go to
Court? You have to attend a hearing presided over by a Bankruptcy
Trustee. This hearing is called the 341 Hearing (Meeting of Creditors). At this
hearing, the Trustee (who is an Attorney or CPA) will ask questions, under oath,
regarding the content of your Bankruptcy papers, assets, debts, and other
matters. It is very much like a deposition. It is not a trial. If you can’t
attend (example: if you are disabled or in the service overseas), you can answer
the questions by Affidavit. The Trustee is not the Judge. He is there to take
any assets from you, if he can, check accuracy of paperwork and determine what
Chapter your case should be. The Trustee represents the banks—not you.
31) Where is my 341
hearing? Your 341 hearing is always at the Federal Court in your
district. In Louisville, your hearing will be on the 5th floor of the
Federal Gene Snyder Courthouse at 6th and Broadway. Use the elevator
on the 6th street side, next to the Courier Journal newspaper
building. If your paperwork is done correctly, your hearing will only last 5
minutes. Just bring yourself, proof of insurance on your car, a picture ID,
and proof of your social security number (social security card, W-2, etc.)
to the hearing. Dress appropriately.
In Lexington, the hearings are at 100 Vine St. Most Courts
require your attorney to bring a second set of documents.
32) What do I wear to the
hearing? Don’t wear cut-offs, jeans with holes in them or 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 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 you owe. You must report what you own and its value,
but don’t brag about your income and how much your car is worth—especially if it
is worthless.
33) Do you show up with me
at the hearing? Your attorney will personally appear! Well, unless he has
10 offices in 2-3 states with 12 attorneys. Large firms will send someone, often
someone you never saw before. We take care of you, and assist through the
process. We don't just file paperwork. However, there is work you must do such
as supply documentation. If you read this manual, you should be able to make the
most of your Bankruptcy.
34) When 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 must file your
tax returns (unless you didn’t have any income and were exempt). The court may
dismiss your case if you don’t file returns and we normally won’t file the case
until you supply them to us. The tax returns and other documents are due to the
Trustee within 2 weeks after your Bankruptcy is filed.
If you can get your refund before you file, and spend it, you
will keep your refund no matter how much it is. It is very rare for persons in
Kentucky to lose a tax refund because the exemptions are so large. But in
Indiana, they are commonly lost because the exemptions are so small.
If you get your refund after you file Bankruptcy, and the refund
is over the exemption, you may lose part of your refund. File a quick refund if
you have to. Some Indiana Trustees start claiming tax refunds in November or
prorate them.
35) What will happen to my
house and car? Usually, you keep them. If your equity is less than or
equal to your mortgage and exemption, you keep the property. You are allowed to
keep a certain amount of property in Bankruptcy. When we prepare your
Bankruptcy, we will tell you if you are at risk of losing property. At the time
of filing, all property that is not exempt belongs to the Court. The idea is to
exempt it all so that you keep it all. Of course, the law concerning what
property you can keep varies from state-to-state. We provide you with the
exemptions in the manual and on our website. If you are in another state, please
beware that many of the websites have the amounts wrong and the amounts may not
be up to date. We do keep the amounts for our state up to date.
36) Do I have to keep up
the insurance on my vehicle? Will my rates be affected or will I be dropped?
If you fail to keep full coverage insurance on your vehicle paid for three
months, the Creditor may automatically pick up your vehicle, according to the
local rules in the Western District of Kentucky. Other jurisdictions have
similar rules.
37) Can a Creditor be
forced into a reaffirmation or agreement to allow me to keep property in a
Chapter 7? Can a Creditor be forced into redemption? No, a Creditor can’t
be forced into a reaffirmation, mortgage modification or workout. A Creditor can
be forced into redemption which allows you to purchase the vehicle or other
personal property from him. Redemption is an agreement to pay the bank what the
security is worth in one lump sum. They cannot refuse the redemption after the
Judge orders it.
If the bank repossess a car, it will
usually take a loss from selling the vehicle at an auction. However, since
lenders have mortgage insurance, they rarely modify a mortgage because they can
rely on mortgage insurance to cover the default. With mortgage insurance, why
would a bank modify to a lower rate, or reduce the principal amount of the
loan?”
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 to
terminate the stay with the Bankruptcy Court and ask to foreclose anyway. If the
bank is adamant that it wants the house or car back, it may file a motion to
terminate the stay in a Chapter 7 and take a loss.
38) Can I choose which
Creditors I repay? Yes, you can pay one Creditor, but not another. You
can keep one car, but let the other car go back.
39) Can I revoke a
reaffirmation? Yes, but it must be revoked 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.
40) I want my house or car
to go back. Will I lose it immediately? No. You will normally have until
at least the 341 hearing to return your car and owe nothing. 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
at least a year to live in it after you stop making payments. The shortest
period for a foreclosure is about six months, and we have seen it take up to 7
years. Consider filing an answer to a foreclosure to stay in the home longer and
filing discovery to remain in it even longer. Remember, a foreclosure will
normally do more damage to your credit than Bankruptcy. Filing a Chapter 13 to
catch up on your payments 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, a bad mortgage or that it is an overwhelming burden.
41) Will I lose my 401(k)
or retirement fund? Your retirement is completely exempt and protected
under Kentucky 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 Kentucky 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. 522(d)(10)(E).
42) I have a personal
injury lawsuit—will I lose those funds? In Kentucky, you can keep up to
about $21,625 as an exempted amount of a personal injury lawsuit that you have
pending. If both are injured you may keep $43,000. Other states have different
rules.
43) XYZ finance company
took my Household Goods as collateral. Do I have to turn them over? It is
possible that you may be able to avoid such liens, if they are old enough and if
you have not borrowed within a certain time before filing Bankruptcy. Also
consider a redemption.
44) I 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,
it can normally be gotten back. 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.
45) Am I liable for income
taxes on debts discharged or property taxes for items surrendered in Bankruptcy?
People often give up cars and then the auto is sold in another state. The car
property tax bill will continue to be sent to the Debtor, even though he
surrendered property. To correct this in Kentucky, you can file an affidavit
with the County Clerk’s office to correct the matter, proving the Debtor did not
have the car after discharge. If you kept the auto then you are liable. Property
taxes are statutory liens on property, and the new home or car owner will have
to pay the property tax to obtain a clear title. There is no property tax if you
discharge a debt in bankruptcy before the lender takes the write off for the
debt. You must file bankruptcy before a foreclosure sale to prove you didn’t
have the obligation when he writes off the debt.
46) If the Trustee doesn't
want the property, can I have it? Yes. But if you hide an asset, you
cannot use the exemption on the property. You have committed fraud and you lose
hidden assets and the right to claim any exemption to keep it. If you are on a
title, claim it.
47) How long do I have to
repay in a Chapter13? You can s-t-r-e-t-c-h out your payments and take up
to 5 years, but no longer. Kentucky local rules require that you can take up to
5 years to catch up overdue payments to stop a foreclosure or repossession.
48) What 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. If you refile a Chapter 13. you may not get the automatic stay and
you may have to file a motion to obtain the stay or be denied if the case was
dismissed for cause.
49) Can I reduce my monthly
payments in a Chapter 13? Yes, a Chapter 13 can reduce your monthly
payments. It can also reduce your interest rates to 8%, or even 0% on priority
debts such as taxes, secured, and unsecured debts.
50) Do I have to pay back
100% of what I owe in a Chapter 13? No. You can repay as little as 0% to
unsecured Creditors in a Chapter 13. Your Chapter 13 must pay at least what a
Chapter 7 would have paid. Certain plans may pay much less than 10%, if that is
all you can afford. You must repay your disposable income.
51) Can I pay some
Creditors and not others in a Chapter 13? You can’t (shouldn’t)
discriminate and pay one unsecured Creditor differently than other unsecured
Creditors in that class. However, different secured, unsecured and priority
debts are often paid differently.
52) Should I try a Debt
Settlement Service instead of filing Bankruptcy? How do Debt Settlement Services
work? "Debt Settlement Services" are agencies that pocket 10-50% 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. Your credit will be listed by the credit card companies as delinquent
for sending in partial payment, and the reduced amounts sent in may not even
cover the interest that a debt charges. These "Counseling Services" often
pretend to be non-profit charities. Many file Bankruptcy themselves, taking your
money with them, or move and set up in a new corporate name. See Ameridebt and
the FTC.
If you pay a debt counseling service $100 a month, what happens
is that they often take $40 for themselves and then send your Creditors $60.
Your bills fall even farther behind. Very few of these "repayment plans"
work, but over 90% fail, leaving you worse off. Another scam is that some
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 in a home mortgage loan. 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.
53) How 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 will need them for any mortgage application. but they
are now filed electronically and available for download at any Bankruptcy
attorney’s office if you filed after October 2002. You are only required to keep
tax receipts 3 years—after 3 years they have the burden of proof—but keep tax
and Bankruptcy records for 7 years anyway.
54) When will I be able to
get credit again? You should 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. In Kentucky, we will be happy to talk to
you and recommend home mortgage bankers and other services that will assist you
in cleaning up your credit file so that you can qualify for a home—or that work
specifically with Bankrupt Debtors. There are also 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 21% interest), and they will
also finance the redemption of some cars at the wholesale book value.
55) Will my employer and
landlord find out about my Bankruptcy? Bankruptcy petitions are public
records; however, under normal circumstances, no one will know you filed a
Bankruptcy petition unless you tell them. Chapter 13 Debtors are often required
to make payments through wage deduction, which means the employer will learn
about the Bankruptcy.
56) Will 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 reports.
57) Can employers
discriminate or fire me? Generally, no. There is an anti-discrimination
section of the Bankruptcy Code that prevents employers and the state of Kentucky
from denying you licenses or discriminating against present employees, but they
can discriminate in hiring. Do yourself a favor: Keep it to yourself. They
generally won’t know unless you tell them. Series 7 securities license holders
do lose their licenses if a Bankruptcy is filed.
58) Are there Bankruptcy
crimes? Yes. Criminal 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 you don’t own property that you do own or that has been transferred to
hide it from the Court.
59) Do I 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 $5,000,
imprisoned for up to five years, or both. However, conviction is very rare and
normally comes up in only the worst cases. Normally, the Court will deny a
discharge, take an asset or dismiss or convert your Bankruptcy proceeding.
60) Can I run up charges on
my credit cards just before filing? The official answer is “No”. Many
people do make some minor charges on their charge cards just before filing.
Spending sprees and charges of over $1,000 on any one card within 90 days before
filing are presumed to be fraudulent and non-dischargeable. Luxury items
of $500 within 90 days and cash advances of $750 within 70 days are
non-dischargeable. Charges to an account more than 90 days before filing are
presumed proper. The rule that you can’t charge within 90 days of filing isn’t
written in stone. There are 12 factors Judges use to determine if it is
fraudulent. The only penalty is that you will have to repay what you charged,
not the entire debt. There isn’t really a “penalty” to these spending sprees.
American Express monitors them the most, Lowes the least.
61) Can I give property
away just before filing? Gifts of property over $600 just before
filing are improper. Selling property for less than its value is also a
fraudulent transfer, and the Court can go after that property and the person you
gave items to. Gifts under $600 are not improper. For example, give one gift of
$900 to your child, and that is improper. But, give two separate gifts of a $450
computer to one child and a $450 car to another child — even minutes apart — and
that is proper.
62) Can student loans or
taxes be bankrupted? (YES, in some cases) If someone tells you it
can't be done, it often means that he doesn't know how to do it—or that
he doesn't want to do it. Student loans over 7 years old were dischargeable
until October 1998, but are no longer bankruptable in a Chapter 7 unless you get
a discharge proving repayment is an undue hardship. This normally requires
disability or retirement, but it is possible and requires an adversary
proceeding.
63) Can I bankrupt a
utility bill? Yes, but they may make you pay a deposit equal to one
month's service to keep service with them. Cable TV is the exception because it
is a luxury, not a utility. Cable TV can discontinue service if you bankrupt
their bill. You won’t have to pay it, but they don’t have to turn it back on
until you do.
If you include utilities in your Bankruptcy, you need to
immediately advise your utility, phone, water, gas and electric company 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.
64) Can Bankruptcy stop a lawsuit?
Yes, but it will not stop criminal cases or criminal restitution. Criminal
restitution cannot be bankrupted.
65) Can I get my driver’s
license back? If you have lost your license due to involvement in an
accident where you had no or too little insurance, filing Bankruptcy will
restore your license. We have the forms!
Fax forms to 502-564-3250 in Frankfort
66) Can Bankruptcy help with tax matters or
high rates and penalties? Yes, Bankruptcy can get rid of income taxes,
reduce interests and penalties in a Chapter 13. Income taxes must be:
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