Bankruptcy Frequently Asked Questions
Q. What is Bankruptcy?
Bankruptcy is a proceeding under federal law whereby you are granted partial or complete relief from the payment of your debts. This initial relief is provided in the form of an automatic stay issued immediately upon the filing of the bankruptcy petition, which, with a few narrow exceptions, stops all creditor collection activities. If you have been a debtor in a bankruptcy that was dismissed within the last year, we may have to file a motion to keep this automatic stay from expiring in 30 days from the date you file the bankruptcy. The final relief comes at the end of the case when the bankruptcy court enters an order eliminating your responsibility to pay certain debts. This final order is called the discharge.
Q. Who can file bankruptcy?
An individual, a partnership or a corporation may file a Chapter 7 bankruptcy. Only individuals may file a Chapter 13 bankruptcy. The information contain herein is for the individual debtor. If you are married, you can file by yourself or file a joint petition with your spouse. An individual, whose debts and assets exceed the limits of a Chapter 13 bankruptcy or a corporation or business may file a Chapter 11 bankruptcy.
Q. What is a Chapter 7?
In a Chapter 7 proceeding you are relieved from the responsibility of your debts with certain exceptions. Property that you exempt is free from the claims of all your pre-bankruptcy creditors. If you have nonexempt assets, the trustee can sell them to pay on your debts. In more than 90% of the cases that we file, all of our client’s property is exempt, so the client gives up no property. Such cases are called “no asset” cases because no assets are turned over to the trustee. More detailed explanations of the exemptions and exceptions to discharge will be discussed at your initial consultation.
Q. What is a Chapter 11?
When a business is unable to service its debt or pay its creditors, the business or its creditors can file a petition with the bankruptcy court for protection under Chapter 11. Chapter 11 permits a business to reorganize under the bankruptcy laws of the United States. It is available to any business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. Bankruptcy affords the debtor a number of mechanisms to restructure its business. The court may permit the debtor to reject and cancel contracts. Debtors are also protected from other litigation against the business upon filing of the petition by an automatic stay provided by law. While the automatic stay is in place, most litigation against the debtor is stayed, or put on hold, until it can be resolved in bankruptcy court, or resumed in its original venue.
Q. What is a Chapter 13?
The concept behind a Chapter 13 bankruptcy is that you and your spouse, if any, have sufficient income to pay all of your current living expenses (rent, food, utilities, transportation, clothes, etc.) and have money left over to apply to your debts. You submit a Chapter 13 plan in which you set out a budget detailing your take-home pay and monthly living expenses and a Chapter 13 Plan payment which consolidates your debts. Creditors are paid based upon a priority system. Under the bankruptcy system some creditors may get paid in full over a period of time; others will get paid but at a lesser interest rate than what is called for in the contract; still other creditors that are unsecured will get paid usually only a small percentage of the total debt. Each individual and case is different and a decision should only be made after discussing all the facts and the law with an attorney.
Q. How do I go about filing bankruptcy?
Contact our office to schedule a consultation. When you come for your appointment, we will sit down with you and go over all of your information. To make this process easier, it is beneficial if you bring with you the following information:
- Pay Stubs: Please provide your most recent pay stub or proof of employment.
- Other sources of income: If you are on social security, disability, SSI, pension, retirement, un-employment or receive other forms of monthly income you need to provide us proof of the amount that you receive and how often.
- Self Employed: You must provide us proof of the gross income that you received in your business in the past 6 months and how the money has been spent.
- Tax Returns: Please provide us with the last 2 income tax returns that you have filed, both federal and state.
- Creditors: Please provide us with a list of creditors such as credit cards, medical bills, personal loans, mortgages, car payments, etc.
Once you have paid all fees, your petition will be prepared and you will be called to set up your credit counseling and sign your bankruptcy petition.
Q. How Can I Keep and Protect Property You Want to Keep
Many of our clients keep everything they own…and lose nothing. Why? Because there are exemptions. Exemptions are basically lists of things a person can keep and still file bankruptcy. The basic purpose of bankruptcy is to allow a person who has become overburdened with debt to free himself of that burden and get a fresh start.
In our experience often when people come see us for help, they have already taken out loans sufficient to use up most of the equity in their property. By equity, I mean the value in something above what is owed on it. For instance, let’s say a house is worth $120,000 and the mortgage on it has a balance of $100,000. The equity in this house is $120,000 minus $100,000, which is $20,000. For people who have lived in North Carolina for 2+ years, you may exempt up to $18,500 total equity in your residence, including a mobile home and burial plots. If you and your spouse own the property jointly and file a joint petition, you can claim $37,000 as exempt. Assuming that a husband and wife who file jointly, for purposes of bankruptcy own this house, this house in this example would be exempt and therefore protected.
There are exemptions to cover many things including residences, motor vehicles, household goods, tools of trade, life insurance policies, retirement plans, etc. Consult a bankruptcy attorney who has a thorough understanding of the exemption laws where you live. Mr. Griffin has helped thousands of families under the burdens of debt file bankruptcy in the Eastern District of North Carolina. Call the Law Office of Greg Griffin at 910.592.1583 or toll free 800.533.2758 to schedule a debt consultation.
Q. When do I get relief from my creditors?
When you file a bankruptcy, the court sends out an order to all the creditors listed in your petition forbidding them from taking any action to collect the debt. They are not to call you at home or at work. However, up to the time that you file, creditors are free to pursue lawful collection efforts. The filing takes place when the Bankruptcy Clerk receives the bankruptcy petition. The petition is sent to the Bankruptcy Clerk after you come to our office and review and sign the bankruptcy petition and schedules, which we prepare for you based on the information you give us.
Do not tell creditors that you have retained our services until we have provided you with a case number.
Q. Do I have to do debt counseling before I file bankruptcy and after I file?
Yes. You are required to take a credit counseling course before filing for bankruptcy. This process is done in our office and will take approximately 30 to 45 minutes to complete. The counseling session is an online course provided by a nonprofit credit counseling agency. It must occur within 180 days prior to your filing bankruptcy.
You must also complete an instructional course in personal financial management after your bankruptcy petition has been filed as a condition of your discharge. In Chapter 13, cases the Chapter 13 trustee provides this course as part of his services. In Chapter 7 cases, the course is obtained on-line at our office. This course will take approximately 2.5 hours to complete.
Q. What happens after the bankruptcy petition is filed?
The filing of the petition serves as an automatic order to all creditors to stop any collection activity. The Bankruptcy Court notifies the creditors that you have filed bankruptcy. In a Chapter 13 the following requirements are imposed on you:
- You make the first plan payment on the first day of the month after the petition is filed and all subsequent payments required by your plan
- You must maintain collision insurance on any vehicle less than 7 years old and on which there is a lien.
- You may not dispose of any non-exempt property worth more than $5,000 without approval of the trustee and an order of the court.
- You may not purchase additional property or incur additional debt in excess of $5,000 without approval of the trustee and an order of the court.
A hearing called a “341 Creditors Meeting” is usually conducted between 30 to 45 days after a petition is filed in both Chapter 13 and Chapter 7 cases. The Court will assign the hearing to be held in a Federal Courthouse normally in Fayetteville, Wilson, Wilmington, New Bern or Raleigh depending on where you live. The court and our office will notify you in plenty of time and we’ll send driving directions and instructions. You are required to bring with you a picture ID issued by a government agency; i.e. driver’s license from NCDMV and a Social Security Card or some other document with your social security number on it like a recent tax return, 1099 or W-2 or a recent pay stub where your full social security number is printed. If you are missing your social security card you may be able to obtain one from the Social Security Administration Office located in Fayetteville or Raleigh.
- In Chapter 13 cases, the debtor education class is conducted at 9 AM in the morning and the 341 creditors meetings usually follows later that morning or right after lunch. It is mandatory that you appear at both the class and the hearing in Chapter 13 cases. You will be instructed on how your Chapter 13 Plan is paying your creditors and where you payments need to be sent. Mr. Griffin will appear at the hearing with you as your legal counsel. At this hearing the bankruptcy trustee will ask you a few questions under oath about your case, which usually takes less than 5 minutes. Creditors are also permitted to ask you questions at the hearing. However, in most cases they do not appear.
- In Chapter 7 cases, once your Petition is filed, a trustee will be assigned and a 341 Creditors Meeting will be scheduled usually within 30 – 45 days. These meetings normally start at 9 AM and it is advisable to get to the courthouse 30 minutes prior to the hearing due to the requirement of going through security. You will be given your discharge approximately 60-90 days after the hearing.
The Court will enter a Discharge Order, if everything is completed properly, at the conclusion of your Chapter 7 or your Chapter 13 case. Most debts are discharged but there are some, such as recent taxes and federally insured school loans that are non-dischargeable. The attorney will go over all of your debts and will be able to explain whether some of your debts are capable or not of being discharged. Upon a Discharge Order being entered your liability for that debt is terminated by law. A permanent automatic stay is put into place which prohibits a creditor from attempting to contact you about this debt and taking any steps to collect the balance.
Q. What effect will bankruptcy have on my credit?
There is no absolute answer to this question. The fact that you have filed bankruptcy is obviously a factor that a creditor is going to consider along with other facts such as your income and the value of any security collateral.
Many creditors rely upon the Discharge Order as being the point where your previous debts have been terminated. That information along with your income, assets and savings will make a substantial impact on how a creditor determines whether to extend you credit in the future.
In a Chapter 13, you cannot incur any debt in excess of $5,000 without the approval of the court. Therefore during the 3-5 years of the Chapter 13 plan you can do little to reestablish your credit. By contrast a Chapter 7 is over in 3 to 4 months, and you can begin taking steps to reestablish credit immediately. You cannot get a second discharge on any new debts in a Chapter 7 bankruptcy case filed within 8 years of the first case. This fact along with the fact that most or all of your debts have been erased, make you a good credit risk in the eyes of some creditors.
In the long run, a bankruptcy may improve your ability to obtain credit. If you are in a situation in which you have accumulated more debts than you will ever be able to pay, then you may never be able to re-establish your credit absent some sort of debt relief. By getting a fresh start with bankruptcy, you put yourself in the position to eventually re-establish your credit.
The policy of most financial lenders is that 2 years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others with the same financial profile as those who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.
Q. Can I be discriminated against in areas other than credit if I file bankruptcy?
The federal, state, county or municipal government may not discriminate against you with respect to the issuance of a license or permit because you have filed bankruptcy. No employer, government or private, can lawfully terminate your employment or discriminate with respect to your employment as a result of filing bankruptcy.