What is bankruptcy?
Bankruptcy is a legal process that
may help you if you have more debts
than you can pay. To begin the bankruptcy
process, you file legal papers (called
a petition) with the Bankruptcy
Court. You must list all your debts
and property on the petition. After
you file for bankruptcy, your creditors
cannot try to collect from you directly,
but they must take any claims they
have against you to the Bankruptcy
Court.
NOTE: YOU CAN STILL FILE FOR BANKRUPTCY.
In October of 2005, new bankruptcy
rules were added, including: Almost
everyone must complete credit and
debt counseling both before and
after filing for bankruptcy. There
are fees for both this counseling,
but people with low income may get
them waived. The counseling can
take place over the phone. Do not
sign up for any counseling until
you have talked to an attorney about
whether bankruptcy is the best choice
for you.
How can bankruptcy help
me?
Bankruptcy may make it possible
to:
• Give you a fresh financial
start by “discharging”
(that is, wiping out or erasing)
certain debts. This means you are
not legally required to pay those
debts. (See what debts can be “discharged”).
• Stop most wage attachments
from your pay. (A wage attachment
is when a creditor gets a court
order allowing money to be taken
from your pay to repay the debt.)
• Stop creditors and debt
collectors from harassing or bothering
you.
• Let you keep any future
wages, money you receive, or property
you buy. This means that creditors
whose debts were discharged cannot
come after you for the old debts.
Note: Alimony and
child support debts have different
rules. For more information, call
Statewide Legal Services at 1-800-453-3320.
What debts CAN be “discharged”?
Bankruptcy can discharge most debts
that are “unsecured”.
Debts are either “secured”
or “unsecured”. Unsecured
debts have no property for the creditor
to repossess (take back). Examples
of unsecured debts include most
credit card debt and medical bills.
Secured debts usually are tied to
a piece of property. (For example,
your car loan or home mortgage.)
If you stop making payments, the
lender can repossess the property.
What debts CANNOT be “discharged”?
Bankruptcy cannot fix all financial
problems. Some debts cannot be discharged,
including:
• Alimony and child support.
• Student loans (unless you
can prove “extreme economic
hardship”).
• Recent tax bills.
• Secured debts (explained
above).
• Debts that build up after
you file for bankruptcy.
• Debts resulting from fraud
(for example not being truthful
on a credit application) or if you
are not truthful with the court
itself.
What property can I keep?
You are allowed to keep enough property
for you to make a fresh start after
bankruptcy. You can keep most of
your household furnishings (furniture,
dishes, etc.), some jewelry, your
clothing, and tools you use for
work. Currently, you may keep up
to $20,200 in equity in your house
($40,400 if the house is jointly
owned by husband and wife), or up
to $10,775 in property (including
cash) if you do not own a house.
Can I keep my car?
Most people who file for bankruptcy
can keep their car. It depends on
how much the car is worth and whether
you still owe money on it.
How will bankruptcy affect
my credit rating?
Most people who file for bankruptcy
are already in trouble with a number
of creditors, and therefore usually
have a poor credit rating. Bankruptcy
will not make those credit problems
any worse, but will not make them
go away. Bankruptcy will be listed
on your credit history for 10 years.
You can be granted credit after
filing a bankruptcy, but the decision
to give you credit is up to the
individual lender.
Will it cost me money to
file?
Yes. The fee is around $300. Some
people with low income can now get
this fee waived; that is, not charge
you to file for bankruptcy. If you
cannot get the fee waived, you may
be able to pay it in installments.
Do I have to go to any hearings?
Yes, there is one very short hearing
that you must attend which takes
place soon after you have filed
your petition. It is called the
“meeting of creditors”,
although creditors do not always
go. And, in some cases you may have
to go to another hearing.
Does
it matter if I have been sued?
No. In most cases, even if you have
been sued and the other side has
won, that debt (“judgment”)
can be discharged (cancelled). This
is true even if a wage garnishment/attachment
has started.
What will happen to people
who co-signed loans with me?
Co-signers are as responsible as
you are for the payment of those
loans. If you discharge your debt
through bankruptcy, the creditor
has the legal right to demand that
your co-signer pay the bill.
