What Steps are Involved in Filing for Chapter 7 Bankruptcy?

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Bankruptcy is not a punishment. It is a protection. But contrary to popular belief, this protection is not for creditors. It is for debtors.

This is because the courts — which essentially represent the will of society — recognize that it is not in society’s best interest for condemn people in debt to a lifetime of financial agony; even if the wounds are self-inflicted vs. caused by unforeseen external events (e.g. excessive medical bills, etc.).

As such, bankruptcy gives debtors the time, legal protection, and financial relief they need to get out — and ideally stay out — of debt, so they can (again, ideally) make a positive contribution to society down the road.

Of course, this doesn’t mean that creditors are left high and dry. They will typically get partial payment based on where they are in the pecking order. And some debts such as alimony, child support, student loans, and court-ordered restitution per a previous criminal conviction cannot be discharged as part of a bankruptcy filing (with this in mind, the court may consider a structured repayment plan if debtors can prove that they cannot meet their full obligations on these debts, and programs exist to provide some relief for student loans).

Steps in Filing for Bankruptcy

Now that you are aware that filing for bankruptcy is essentially a legal protection for debtors and not a collection method for creditors (in fact, as we’ve written about creditors typically don’t want debtors to file for bankruptcy!), we can look at the other unknown aspect that fills many people with anxiety and distress: what the filing process looks like.

Basically, here are the steps that you’ll take on your journey of filing for chapter 7 bankruptcy:

  1. Within six months of filing for bankruptcy, you must complete a mandatory credit counseling course. The course is delivered through in-person training, as well as via the web.
  2. You must submit a complete application to the court that includes financial statements, income tax assessments, and proof that you pass your state’s respective chapter 7 means test. If you wisely hire a bankruptcy attorney to represent and guide you, then he or she will handle this on your behalf and ensure that your application is complete. Note that if your application is incomplete, then it will be delayed or may be denied, and you will not be granted an automatic stay from your creditors. They will continue to contact you, charge interest on debts, and proceed with collection activity such as wage garnishment and civil lawsuits.
  3. If your application is complete and accepted, the court will assign a trustee to govern the remainder of the bankruptcy process. Keep in mind that the trustee does not work for you or for creditors. He or she is an officer of the court.

  4. Your creditors will be invited to a meeting that you must attend (if you have an attorney, then he or she will accompany you). During this meeting, the trustee and creditors will have the opportunity to ask you questions about your finances and future earning potential.

  5. After the meeting of creditors (also called a “341 Meeting’), your eligibility to file for chapter 7 will either be confirmed or denied, largely on the basis of whether you passed the chapter 7 means test. If you are not eligible, then you will typically be able to file for chapter 13 bankruptcy in which you propose a structure repayment plan that is typically executed for 3-5 years.

  6. The trustee will then take an inventory of your non-exempt assets (i.e. items that can be sold or liquidated to pay off your debts). You might also be able to negotiate with the trustee to retain certain non-exempt assets. Essentially, if the trustee can get as much or more from you vs. another party, there is a good chance you will be able to keep the asset(s).

  7. Next, the trustee goes through your secured assets and determines what assets will be returned to creditors. You may be able to retain some of these assets by paying for them, or reaffirming debt. However, keep in mind that if you wish to reaffirm any debts, then you must attend a reaffirmation hearing in front of a judge. If you have an attorney, then he or she can represent you at the hearing and you do not have to attend.

  8. You must complete a financial management course. Similar to the credit counseling course that must be taken within the six months immediately prior to filing for bankruptcy, the financial management course is available in-person and online. Once you have completed the course, you must submit a form to the court verifying your achievement.

  9. Within 3-6 months after filing, you will receive a discharge notice in the mail (your attorney will also receive a copy). At this point, the automatic stay is lifted — which is fine, because even if you have creditors at this point, they will not be threatening you with collection activity.

  10. Typically within a few days (or sometimes a few weeks) after getting your discharge notice in the mail, you will receive a letter informing you that your case has been closed. You will no longer be liable to most (or ideally all) of your creditors, and can start your new life ahead with a clean financial slate.

Learn More

To learn more about the process of filing for chapter 7 bankruptcy, contact the Law Office of Charles Huber today. We have over 30 years of experience filing consumer bankruptcy cases. Our experience is your advantage!

FAQ: Getting a Mortgage after Filing for Bankruptcy

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Understandably, the biggest concern that many people have about filing for bankruptcy is how it may hinder their ability to get a mortgage in the future.

To provide clarity and reduce anxieties that are based on myths and misinformation — and unfortunately there is a great deal of both floating around the web — below we answer some frequently asked questions about getting a mortgage after bankruptcy:

Question: “Do I need to wait until a bankruptcy filing is removed from my credit score before I get a mortgage?”

Answer: No, you do not. If your bankruptcy was caused by reason(s) beyond your control, then you should be able to apply for a mortgage two years after discharge. If your bankruptcy was the result of financial mismanagement on your part, then you will be able to apply for a mortgage four years after discharge.

Question: “Does a bankruptcy filing make me ineligible for federal housing loan programs?”

Answer: No, your eligibility is not affected. However, you will have to abide the required waiting period. For example, if you wish to apply for a Federal Housing Authority (FHA) loan, then you will need to wait two years after discharge. Or if you wish to apply for a United States Department of Agriculture (USDA) loan, the waiting period is three years (for chapter 7 filings) and one year (for chapter 13 filings).

Question: “Are there any exceptions to the two-year post-discharge waiting period before applying for an FHA loan?”

Answer: Yes, there is. You may be able to apply for an FHA loan less than two years after discharge if you meet two conditions: 1) your bankruptcy was not the result of financial mismanagement on your part (e.g. you were forced to cover excessive medical bills or major home repairs after a natural disaster); 2) since filing for bankruptcy, you have behaved in a financially responsible and prudent manner.

Question: “Will conventional lenders make me pay more for a mortgage based on my bankruptcy filing?”

Answer: This depends. Conventional lenders (a.k.a. private lenders) rely on a variety of factors to determine lending rates, including — but not exclusively — credit scores and bankruptcy filings. With this being said, all lenders (banks and private organizations) are governed by Federal and State guidelines that forbid predatory lending practices, discrimination, and other transgressions.

Generally speaking, if you pay less than a 20% down payment on your home, then you’ll be required to pay mortgage insurance (contrary to what some people believe, the government does not insure private conventional mortgages). However, once you have 20% equity in your home, the insurance payment should drop or be eliminated.

Learn More

To learn more about getting a mortgage after bankruptcy, contact the Law Office of Charles Huber today. We have over 30 years of experience filing consumer bankruptcy cases. Our experience is your advantage!

3 Things NOT to Do When Preparing to File for Bankruptcy

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Knowing what you should do in the months, weeks and days ahead of a bankruptcy filing is important. But in a sense, knowing what you should NOT do is even more important — because making mistakes, following the wrong advice, or deliberately trying to cut a corner or two are disasters waiting to happen.

To avoid that very costly and stressful fate, here are 3 things you should NOT do when preparing to file for bankruptcy:

  1. Start paying back family and friends.
  2. It may seem like paying back family and friends is the ethical thing to do — or maybe, just the wise thing to do, since at least creditors don’t sit across from you at the dinner table or show up at family reunions!

    However, the court is almost certainly going to take a dim view of this practice. In their eyes, it’s not up to debtors to prioritize who gets paid back in what order, and how much. That is up to the court, as represented by the trustee. If the trustee deems that any monies paid to select creditors in advance of your bankruptcy filing are deemed “preferential transfers,” then those funds may be reclaimed. Try explaining that around the dinner table or at a family reunion!

  3. Max out on credit cards.
  4. Some people who specialize in doling out advice on things they know staggering little about — and of course, who are never held accountable when their guidance turns out to be catastrophic — may tell you to “max out your credit cards”; i.e. spend, spend, and spend some more in advance of a bankruptcy filing. After all, it’s free money, right?

    Wrong! The trustee will certainly look at your credit card statements (and bank account statements) for several months or even years prior to a bankruptcy filing, to verify that there was no excessive spending that represents a circumvention of the rules.

    With this being said, if you legitimately spent $1500 on car repairs nine months ago and plan on filing for bankruptcy next month, then this doesn’t necessarily mean that you’ll be accused of trying to pull a fast one. As long as you can justify the expense and there is no pattern to suggest that you significantly increased your spending pattern in advance of a bankruptcy filing, you should be fine.

  5. Withdraw funds from your retirement account.

Even if they plan on filing for bankruptcy, some people tap into their retirement funds to pay off their most aggressive creditors — like the IRS. This is usually a mistake, because you should be able to protect most — if not all — of your retirement funds per a bankruptcy filing.

The Bottom Line

Filing for bankruptcy is much more complex that most people realize. In addition to multiple rules that vary state to state, there are specific deadlines that must be adhered to. Mistakes along the way — accidental or by following bad advice — can be devastating.

To get the facts and counsel that you need contact the Law Office of Charles Huber today. We have over 30 years of experience filing consumer bankruptcy cases.

Chapter 7 Bankruptcy Myths Debunked: Part 3

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bankruptcyWe have already devoted two blogs (this one and this one) to the noble cause of debunking bankruptcy myths about chapter 7 bankruptcy. And while we hoped that the book was closed on this unfortunate topic, to echo the words of Michael Corleone in the Godfather III: “just when we thought we were out, they pull us back in!”

And so, while we dream of a day when bankruptcy myths are nowhere to be found (and the people and businesses behind them are shut down or maybe even in jail), until then, let the debunking continue:

Myth #8: You can’t file for divorce while legally separated.

Fact: Spouses can indeed file for divorce while legally separated, although in some cases it may be beneficial to file jointly. Typically, any debts that are incurred after the separation starts is the responsibility of each respective spouse.

It’s also very important for people to realize that if their spouse for bankruptcy and they do not, then creditors may come after them and leave their spouse alone, even if the debt was incurred by both parties.

To learn more about this complex issue, read our article here.

Myth #9: You can only file for bankruptcy once in your lifetime.

Fact: Unless the courts declare otherwise — which they will only do so when an individual is deemed to have broken the law or committed a severe breach of bankruptcy rules — there is no limit to the number of times that an adult individual can declare bankruptcy in their lifetime.

With this in mind, there is a minimum amount of time that must pass before filers can re-file. Currently, the timeframes are:

  • Chapter 7 filing to chapter 7 filing: 8 years from the previous date of filing.
  • Chapter 13 filing to chapter 13 filing: 2 years from the previous date of filing.
  • Chapter 7 filing to chapter 13 filing: 4 years from the previous date of filing.
  • Chapter 13 filing to chapter 7 filing: 6 years from the previous date of filing.

To learn more about timeframes and rules, read our article here.

Myth #10: It’s fine to “fudge the numbers” a little on a bankruptcy filing, or deliberately leave out an asset.

Fact: Deliberately submitting incorrect information, or withholding information, on a bankruptcy filing is against the law and will result in extremely severe penalties. Don’t do it. Ever!

With this being said, the courts understand that honest makes happen. For example, sometimes individuals legitimately forget an old debt, or they’re unaware that their debt has been sold by one creditor to another (this happens quite often, and creditors sometimes forget to send a letter announcing the transfer). Once these oversights are brought to light, individuals are expected to provide an explanation. If it is reasonable, the court will typically not impose any punishment — through it may administer a stern warning.

To learn more about the terrible things that happen to people who lie on their bankruptcy filing, read our article here.

We’re Here to Help

To get the accurate facts about bankruptcy you need — and avoid costly and potentially catastrophic myths — contact the Law Office of Charles H. Huber today. We have been helping individuals file consumer bankruptcy cases for more than three decades. Our experience is your advantage!

The Basic Facts of Filing for Chapter 7 Bankruptcy While Separated

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Whether temporary or leading to divorce, separation can be an emotionally traumatic experience. Indeed, even in so-called “good breakups” (which some people consider a contradiction in terms) can cause wounds that can only be healed with time, support, and possibly the assistance of a qualified mental health professional like a psychologist, psychiatrist, therapist or counselor.

However, it is less well-known that separation can — and often does — impose a major financial burden as well. Unfortunately, creditors frankly do not care and have zero compassion when it comes to this very common scenario. They demand payment, and will not pause their aggressive collection efforts — including filing lawsuits — because a debtor is going through a very difficult time in their relationship or family.

If you are facing this difficult situation, then filing for chapter 7 bankruptcy might be in your best financial interest. Here are some basic facts that will help you decide if contacting a bankruptcy attorney for a closer look at your options is a worthwhile next step:

  • Contrary to what many people believe, individuals can indeed file for bankruptcy while legally separated. They do not need to file jointly (although in some cases it may be beneficial to do so).
  • Usually, any new debts that you incur after legally separating will be your responsibility (and the same applies to your spouse).
  • If you and your spouse have joint credit cards or other joint debts, then these will continue accumulating and creditors may seek to enforce the debt against the non-filing spouse. In other words: if your spouse files for bankruptcy and you do not, then creditors may come after you — and not your spouse — to pay up, even though the debt was initially incurred by both of you.
  • In the same light as the point immediately above: depending on the homestead exemption laws in your state, if your spouse files for bankruptcy and you do not, then creditors may seek to foreclose on your home in order to resolve outstanding debts that were incurred by you and your spouse.
  • If you file for bankruptcy and ultimately discharge your debts in federal court, the family court in your state may use your new (and larger) disposable income amount to reduce your alimony award if you are due to receive a monthly amount, or increase your obligation if you are due to pay a monthly amount.
  • Should You File While Separated or Wait for Divorce?

    Whether you should file for chapter 7 bankruptcy while separated, or if you should wait until you are officially divorced, is an extremely important issue to resolve — one that will have a lasting impact on your financial future for decades to come.

    The above facts are NOT intended to point in you in one direction or the other. Rather, they are meant to give you a basic understanding of the landscape. The only source that can provide you with counsel for your specific situation is an experienced bankruptcy attorney. Be advised that your family lawyer cannot (and should not) provide you with this type of financial advice, since it is not their area of specialization. Fortunately, this warning is usually a non-issue, since qualified and credible family lawyers will always refer you to a bankruptcy attorney if they believe that it is in your best interest to consult with one.

    Learn More

    To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing bankruptcy cases, and have helped numerous individuals going through the legal separation.