FAQ

Bankruptcy FAQ

  • SHOULD I TRANSFER SOME ASSETS BEFORE I FILE?

    This can have severe repercussions for your case and for the person to whom you've transferred the property. A more complete discussion of this is on my blog, but it suffices to say for now that it is generally a bad idea and one that must be discussed with your attorney in a frank discussion before any transfer is attempted. Even ordinary and allowable transfers such as the sale of a car for fair market value to an unrelated buyer before you file warrants a discussion with your attorney even if he or she approves it. This is why you hired your attorney so be sure to get advice.

  • WHAT IF I HAVE A CO-SIGNOR OR JOINT CREDIT CARD ACCOUNT

    You’ll be discharged of any liability, but your co-signer or jointly responsible borrower will not get the benefit of the discharge.

    Sometimes the other party is just an “authorized user” on the credit card account and never signed up to be responsible for the account. In that case, just take them off the account before you file to lessen the chance that the bankruptcy will be associated with that account on their credit report.

  • CAN I KEEP MY HOUSE AND CAR IN THE BANKRUPTCY?

    Typically, the answer is yes. As long as you continue to make payments on your car or mortgage and there is not too much equity in those assets to protect, then bankruptcy will not have any practical effect on your keeping your house or car.

    However, if you own your own house outright, without any debt against it, then if the value is typical for this area you may not be insolvent and you should definitely consult with an attorney before filing a Chapter 7 bankruptcy.

    In about 97% of Chapter 7 cases, debtors do not lose assets of any kind and if you consult a bankruptcy attorney of any competence whatsoever you should not lose any property in a bankruptcy of which you would not otherwise be advised of prior to filing.

  • DO I HAVE TO LIST DEBTS I OWE TO RELATIVES AND FRIENDS?

    Yes, you do if you owe them when you file the case. If you have received gifts from them that you intend to repay although they don’t expect repayment of that gift, those are not loans because a loan requires the intent of both parties.

  • DO I LIST CREDIT CARDS WITH NO BALANCES OWED?

    No. So long as on the date of filing there is no balance owed they are not listed. However, they may cancel or reduce your credit if they learn of the bankruptcy, so don’t count on being able to use it. That would be up to the creditor.

  • SHOULD I PAY OFF AT LEAST ONE CARD BEFORE I FILE SO I HAVE SOME CREDIT CARD TO USE?

    I usually advise against it. As mentioned in the FAQ above, they could cancel your credit. It may be better to get a secured credit card after you file the case, then you know you’ll be able to use it, often for about the same outlay of cash.

    Remember in addition to credit cards, your ATM card has a Visa or MasterCard function on it so you’ll be able to use electronic payments even without a credit card. Depending on your credit rehabilitation goals, we will discuss the pros and cons of credit use post bankruptcy.

  • WHAT IS CREDIT COUNSELING?

    Credit counseling was mandated by BAPCPA, the new bankruptcy laws, in 2005. It is a course you do mostly online, and must be completed and a certificate of completion filed prior to filing any chapter of personal bankruptcy.

    It is easy to do and a good bankruptcy law firm will time it right so that it is done at the right time in the workflow to avoid any redundant work. We have never seen the credit counseling certificate denied since BAPCPA went into effect.

  • WHAT IS DEBTOR EDUCATION, OR A FINANCIAL MANAGEMENT COURSE?

    They are the same thing, which is an online course taken after you’ve filed bankruptcy, usually within 45 days after your 341A hearing which is a requirement for you to receive your discharge.

  • IS IT A DIFFICULT PROCESS TO FILE BANKRUPTCY?

    If you have a good bankruptcy lawyer it is not very difficult, although you will be asked to provide a lot of information. The bankruptcy law firm is expert at packaging up the information and presenting it in a light best suited for your case. You, however, are the main provider of information that is not publicly available. A good bankruptcy law firm will not ask you to duplicate information publicly available, but just to verify it.

    If you choose to represent yourself in a case you will not only have to package and present the information yourself, but also be responsible for complying with all the processes required during the case. That is difficult for most lay persons.

    So long as you provide the required information to your attorney and follow his or her directions throughout the case, and you are filing under Chapter 7 or Chapter 13, it is not difficult to file bankruptcy. If the firm does 100% bankruptcy like LeverLaw, your chances of being expertly shepherded through the process are much better.

    However, if you need to file a Chapter 11, which is very unusual for an individual, then it can be difficult even with an expert dedicated bankruptcy attorney. To file under Chapter 11 there has to be a very good reason to file as an individual.

  • WHAT IS CHAPTER 11?

    Chapter 11 is a reorganization chapter for individuals who have too much debt to file a Chapter 13, or for business entities such as corporations.
    In a Chapter 11 you are your own trustee, reporting directly to the Office of the U.S. Trustee. You have to have a new bank account called a Debtor-in-Possession bank account (or DIP) and you have heavy administrative burdens. You must prepare two monthly accountings of all your finances, one on a cash basis and the other on an accrual basis. The initial filing requirement are extensive in addition to the regular petition, schedules and bankruptcy forms.

    Creditors get to vote on your plan unlike a Chapter 13 plan. You must get a disclosure statement approved so that your creditors will have a basis to understand your plan sufficient to have informed consent on whether to vote for or against your chapter 11 plan. The judge must also approve your plan in a confirmation process as well.

    You have to pay fees to the Office of the U.S. Trustee during your case and while the plan is performed after confirmation.

    It is very expensive and burdensome for an individual, or even a small company to file Chapter 11. There are a very limited set of circumstances where it is advisable. This is definitely where you’ll need expert counsel. LeverLaw does Chapter 11 cases if the facts, goals and resources are there to use this tool successfully, assessing these cases with utmost care before filing under Chapter 11.

  • HOW LONG BEFORE MY CREDIT RETURNS TO WHERE I CAN GET A REGULAR CREDIT CARD OR MORTGAGE?

    Rebuilding credit depends on how diligently you try to get back on track, but generally it takes about 1-3 years. Remember, you can always get a secured credit card or a mortgage with a low loan to value (LTV) and high interest rate, sometimes even still in the middle of a bankruptcy. Fortunately, or unfortunately, depending how you look at it, many debtors get offers for credit cards while still in bankruptcy, but not on very favorable terms.

  • HOW LONG DOES BANKRUPTCY STAY ON MY RECORD?

    A Chapter 7 stays on the public records part of your credit report for 10 years, and a Chapter 13 for 7 years. However, while that makes it easy to know whether you filed during that period, creditors look to your credit score rather than analyzing your credit history themselves. Your credit score is usually improved within 12 months after you file your case if you are diligent in caring for your credit profile. Detractors of the bankruptcy remedy often cite the 10/7 year rule for the public records as a reason not to file bankruptcy. This is erroneous given the importance of the credit score over the individual line items of the credit score.

  • DO MY SPOUSE AND I HAVE TO FILE JOINTLY?

    No! The decision to file individually or together depends on your situation. For instance . . .

    1. If only one partner has all or most of the debt then only that person should file;
    2. If both partners have the debt, and want to file a Chapter 7 then both should file;
    3. If you're trying to stop a foreclosure, only one person, on the title to the home, need file a Chapter 13.

  • WILL MY BANKRUPTCY FILING AFFECT MY SPOUSE’S, PARTNER’S OR OTHER PERSON’S CREDIT STANDING?

    No. They go by your social security number in reporting bankruptcies, so it should not affect anyone else’s credit, not even your spouse.
    Sometimes you allow others to use your credit while they are not responsible for the account. They are called “authorized users” in industry jargon. I recommend that you drop any authorized users of your credit from those accounts before filing to avoid the possibility of erroneous credit reporting on the authorized user.

  • WILL I OWE TAXES ON DEBTS FORGIVEN IN BANKRUPTCY?

    No. There is an exception to the rule that debts forgiven are included in gross income. Bankruptcy is one of the exceptions under the Internal Revenue Code.

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