(click on the questions below to see the answers)
- What are creditors and debtors?
This is a very basic question, but an important one for understanding how bankruptcy cases work. A debtor is the person that owes the debt. A debtor in a bankruptcy case can be an individual, a married couple, a company, or even a governmental entity such as a city or state.
A creditor is the person to whom the debt is owed. A creditor may or may not be actively trying to collect the debt, but if they are owed a debt, they are a creditor in a bankruptcy case. A creditor can be an individual, an organization, a company, or a governmental agency.
- What is the difference between secured debt and unsecured debt?
Secured debt is debt that is secured by an interest in property. This means that if the creditor does not receive the payment owed, they have the legal right to foreclose, repossess, or attach the property in some way. The most common types of secured debt are home mortgages and car loans. Most secured debt is not dischargeable in a bankruptcy case.
Unsecured debt is debt that is not secured by any interest in property. This means that the creditor can pursue the debtor to collect what is owed, but there is no property linked to the debt that they can foreclose, repossess, or otherwise attach. The most common types of unsecured debt are credit card debt and medical bills. Most unsecured debt is dischargeable in a bankruptcy case under certain conditions.
- Should I file a Chapter 7 or Chapter 13 bankruptcy?
In general, Chapter 7 bankruptcies are for those without assets who need relief from overwhelming credit card debt, medical bills, or other types of unsecured debt. A Chapter 7 bankruptcy can wipe out much of that debt and give the debtor a fresh start.
A Chapter 13 bankruptcy is generally for those with regular income and some assets that they want to keep. By filing a plan with the court, a debtor can pay their secured debts over time and even catch up on missed payments without the constant threat of foreclosure or repossession. Chapter 13 plan payments can last for up to 5 years and many types of unsecured debt is dischargeable.
- Is bankruptcy right for me?
Bankruptcy is a big decision and should not be taken lightly. In many cases it can grant enormous relief to debtors, giving them time to catch up on missed payments, save important assets, and wipe out credit card debt, medical bills, and many other types of debt. However, bankruptcy is not right for everyone and there are sometimes more appropriate tools available that can achieve some of the same goals.
At Kehoe & Beslow we treat each client as an individual and gather as much information as possible before recommending bankruptcy. Contact us today to make an appointment for a free consultation and we can determine if bankruptcy is right for you.
- How much does it cost to file a bankruptcy?
Bankruptcy filing fees are set by the court and are currently $306 for a Chapter 7 case and $281 for a Chapter 13 case in New York. In some circumstances, these fees will be waived by the court if the debtor can show that paying them would result in hardship for the debtor.
There are also additional fees charged by the Bankruptcy Trustee, who is assigned to every case, and there will be attorney’s fees that must be paid to the debtor’s counsel. Contact us for a free initial consultation and we can discuss these fees in detail.
- What is the Automatic Stay in bankruptcy?
The Automatic Stay is a powerful tool provided to debtors by the bankruptcy code. As soon as a debtor files for bankruptcy (chapter 7 or Chapter 13), the Automatic Stay goes into effect and all creditors must immediately stop all efforts to collect the debt. This includes foreclosure, repossession, and harassing calls & letters from collection agencies. These creditors must now pursue their claims through the bankruptcy court.
The Automatic Stay can be a great tool for stopping an eviction, foreclosure sale, or repossession and can buy a debtor time to find a new home or to formulate a plan for paying the debt owned under a Chapter 13 plan.
- Will I lose my home in bankruptcy?
In most cases debtors do not lose their homes in bankruptcy. Most homes are exempt from the bankruptcy case (although they must still be listed on the bankruptcy petition) and can be kept by the debtor. In cases where the debtor is behind in mortgage payments, he can often catch up on those payments through a Chapter 13 plan and keep his home.
However, debtors who have no or little equity in their home may want to let the house and mortgage go. The foreclosure process can take up to 2 years and you can live in your home rent and mortgage-free during that time period. That gives debtors a chance to save up for the next move. Once you get a discharge of any unsecured debt, you get a fresh start and can find a new home.
- Can bankruptcy help me stop a foreclosure action?
When you file bankruptcy the “Automatic Stay” takes effect and immediately stops a foreclosure action. It prohibits your creditors from contacting you and trying to collect their debts. That can buy you some time to try to save your home and reinstate your mortgage.
Through a Chapter 13 bankruptcy you can pay back your mortgage arrears in reasonable monthly payments over a 3 to 5 year period with no interest. You can also apply for a loan modification during the bankruptcy process, which can reduce your interest rate or even your principal balance, making your monthly payment lower. You can read more about how bankruptcy can help you stop a foreclosure here.
- What is a discharge in bankruptcy?
A discharge is one of the primary benefits of a bankruptcy case. It resolves the debtor of the liability to pay many unsecured debts. After the discharge, those unsecured creditors are prohibited from pursuing the debtor to collect their debts. The discharge is what is often referred to as wiping out debt. Debts that are commonly dischargeable are credit card debt, medical bills, and personal unsecured loans.
- Is my credit card debt dischargeable?
Credit card debt is one of the most common types of debt to be discharged in a bankruptcy case. It is unsecured and, in the absence of fraud or improper activity, it is almost always dischargeable.
- Are student loans dischargeable in bankruptcy?
In most cases student loans are not dischargeable in bankruptcy. They can only be discharged in rare cases where the debtor is able to show that paying them would cause undue hardship.
- Is tax debt dischargeable in bankruptcy?
Most taxes cannot be discharged in a bankruptcy. However, they can be dealt with in a way that can allow you to pay them over a three to five year period without late penalties. There are some circumstances where tax debt can be discharged, so it is best to discuss it with an attorney to see if your tax debt qualifies for a discharge.
- Can I keep some of my assets out of the bankruptcy?
All assets and even partial ownership of joint assets must be included in the bankruptcy petition. However, that does not mean that you will lose those assets. There are exemptions that protect some assets, and other assets can be kept if you are making regular payments on them. It is very important to list all assets on the bankruptcy petition so that we can use every tool available to us to protect those assets.
- How does bankruptcy affect my credit rating?
While a bankruptcy filing will remain on your credit report for up to 10 years, it can often help your credit improve over time. People who file for bankruptcy are generally already in financial trouble and a bankruptcy signals a new beginning with the intent to get a fresh start. Once your credit rating takes the initial hit from the bankruptcy filing, it can start to improve through managing your debt correctly.
- Will I lose my car in bankruptcy?
Most debtors do not lose their cars in bankruptcy. Many people still owe payments on their car and any equity they do have is generally exempt under the bankruptcy law. Only debtors with a large amount of equity in a new car will be at risk of losing that car.
- Will my IRA or 401K be protected in bankruptcy?
Yes. The law protects retirement accounts and they are not at risk in a bankruptcy.
- Can I keep my insurance policies in bankruptcy?
Yes. Insurance policies are protected by law and only certain types of life insurance policies with a large cash value may be reached in order to pay creditors. It is important to discuss these with an attorney so that we can determine if they are at risk.