Bankruptcy FAQs
I understand that nobody wants to talk with a lawyer about bankruptcy. I've learned over the years that clients filing for bankruptcy are not trying to avoid their responsibilities, but rather are looking to alleviate the realities of a difficult situation. Below are some FAQs.
Credit scores are not "black and white," where some people have "good" credit and others have "bad" credit. Rather, we all fall into some shade of grey. If you have debt problems, then your credit score may already be low. In that case, filing a bankruptcy case may actually improve your credit score. Even if your credit score is high, however, this does not mean that your finances are healthy. You need a roadmap to getting out of debt. Then, even if your credit score drops temporarily, when it comes back up (and, it will come back up over time if you pay your bills after a bankruptcy), you can utilize that higher credit score to make wise borrowing decisions. After all, what is a high credit score good for except borrowing more money?
It is unusual for people to lose any of their belongings when they file. In a Chapter 7 (liquidation) case, it is possible to lose property if you own unusually valuable property. However, some property, including most pensions, most homes, and most cars are exempt. Even if the property is more valuable than the amount of the exemption, you can usually make arrangements in a Chapter 7 case to keep the property that is important to you. In a Chapter 13 (repayment) case, you will not lose any property, but you will make payments through a Chapter 13 plan. If you are considering filing for bankruptcy and you have valuable property, then it is important to discuss this with your attorney.
An experienced attorney can help you decide which chapter is best for you. Usually, if a client needs bankruptcy protection, we look to see if a Chapter 7 will be the right tool to resolve their financial difficulties. If not, we look at Chapter 13 as a possible tool.
While every case is unique, the following factors often suggest that a Chapter 13 filing may be appropriate: Valuable non-exempt assets, High income, Prior bankruptcy within the past eight years, Behind on mortgage or car payments where the consumer wants to catch up.
It is legal to file your own case without the assistance of an attorney, but like so many other things, it is best to have professional assistance. Once you file a case, it may be impossible to fix things that were done improperly, and many people find the task to be daunting.
If you file a bankruptcy, you can choose to pay back any debts that you want. However, you must list all ofyour debts on the bankruptcy petition so that your creditors know that you filed.
It is extremely unusual for people in bankruptcy to be required to appear before a judge. In most bankruptcies, the only appearance that is required is at a Meeting of Creditors. The meeting is usually very short, and, despite the name, it is unusual for any creditors to show up. (Maybe they should change the name to "Meeting Without the Creditors?")
There are really two different issues here: past taxes and future taxes. First, if you owe income taxes from the past, then they may be dischargeable. Some taxes that are more than three years old may be discharged, but there are many rules that apply. Second, the bankruptcy will not create any future tax liability. That is, you do not have to pay any income taxes as a result of getting rid of debt in a bankruptcy. Incidentally, this is different from some cases where people settle their debts with creditors and later have to pay taxes on the amounts that were forgiven.