Common Questions
What is bankruptcy?
For most people bankruptcy means you are not able to meet your financial obligations as they become due. For whatever reason when this happens you may want to consider filing for bankruptcy relief. Bankruptcy is an attempt to make the best of what has become a bad situation. Bankruptcy gives you a fresh start and can protect you from creditors and their legal right to collect a debt through lawsuits, repossession, foreclosure and garnishment.
Bankruptcy allows you to discharge your debts. A discharge ends your legal obligation to pay the debts. If you want to repay your debts, but need time to do so, there is a type of bankruptcy that will allow you to repay your debts at a rate you can afford and requires your creditors to cooperate while you do so. In bankruptcy, the debtor is allowed to keep basic assets to assure a successful fresh start. These generally include your home, vehicles, household possessions, wages and retirement plan.
Today we have two basic approaches to consumer bankruptcy relief: A Chapter 7 case which is a liquidating bankruptcy or what is referred to as a "straight bankruptcy," or a Chapter 13 case which includes a debt repayment plan for individuals and single owner businesses.
Each person's situation is different. What applies to one person may not apply to another. To determine bankruptcy options as they apply to you, an attorney competent in bankruptcy matters should be consulted.
How will my credit be affected?
Anything you do concerning payment of your debts is a part of your credit record.
Bankruptcy, like prompt payment, slow payment, foreclosure, repossessions, charge-offs or any other manner of handling your debts, is reported on your credit record. Good credit is paying what you owe when it is due.
Many events that affect your credit will appear on your credit report for as long as seven years and sometimes for up to ten years, including a bankruptcy. Since the consideration of bankruptcy arises only after a bad situation has developed, the chances are that your credit record is already less than good, or is rapidly heading in that direction.
A bankruptcy is a negative event on your credit history. It is also a unique event. It shows prospective creditors that you do not owe any of the debts (including late or missed payouts) that preceded your bankruptcy. In most cases, your debt slate is wiped clean. This doesn't mean that you will be able to get credit immediately after you file bankruptcy. But filing does give you an opportunity to begin a new chapter in your credit history, a fresh start, and over time you will be judged more and more on your history after the bankruptcy, including your payment history, stable housing, employment and income.
In this situation the hope is that whatever you do will improve and re-establish good credit.
Each person's situation is different. What applies to one person may not apply to another. To determine bankruptcy options as they apply to you, an attorney competent in bankruptcy matters should be consulted.
Can creditor harassment be stopped?
When a person falls behind in payment of debts, creditors take various actions to collect: " Telephone calls at home, at work, to other family members or neighbors or friends. " Co-signers may be called upon to make payment. " Foreclosure or repossession proceedings may be started against home, automobiles, furniture, appliances or other personal items. " Lawsuits can be filed and judgments taken against you, which may also result in wage garnishments or liens placed on your bank account or real estate.
If you qualify for protection under the United States Bankruptcy Code, all of these collection efforts can be stopped!
The filing of a bankruptcy automatically stops a creditor from further collection efforts - no more phone calls, letters, bill collectors, foreclosures, repossessions, garnishments or seizures lawsuits or judgments. In order to pursue any collection effort the creditor must first file a request with the bankruptcy court to get permission to continue collections. In most cases, this would not be pursued or allowed.
You can have this relief and protection offered by the Bankruptcy Court.
Will I lose any of my property?
The answer to this question depends on the type of bankruptcy relief you select - either the "straight bankruptcy," referred to as Chapter 7, or a Chapter 13 repayment plan. One of the basic concepts in a Chapter 7 bankruptcy is that you may lose your assets - whatever they may be. However , there are important exceptions . You are allowed to keep certain exempt assets, the idea being that you need certain basic items in order to make a successful fresh start after bankruptcy.
It is important to inventory all of your assets and then, with the help of your attorney, determine what would be exempt. This allows you to keep as many of your assets as possible. Quite often, especially in a family situation, all of your assets will be exempt, which means you lose nothing after filing bankruptcy.
If you file Chapter 13, you normally keep all of your assets because you are, in fact, paying your debts.
There is a good possibility you will lose none of your property!
Each person's situation is different. What applies to one person may not apply to another. To determine bankruptcy options as they apply to you, an attorney competent in bankruptcy matters should be consulted.
Can home foreclosures be prevented?
When you fall behind on your house payments to a mortgage creditor, that creditor may foreclose on your property. The number of months you are behind may vary, but at some point the lender may refuse monthly payments unless you pay all of the delinquency. If you cannot do this, the entire amount of the note can be accelerated (i.e. the total balance is due not just the total amount of past due payments) and your home taken by foreclosure. You should receive proper notice of foreclosure, and a sale of your home will be scheduled after a court enters a Decree of Foreclosure.
Iowa law in some instances allows a delay in the sale of your home, but this delay has to be requested in a timely fashion in the Foreclosure case not in a bankruptcy case. This delay can be up to six months from the Court's order allowing the foreclosure.
After foreclosure, the creditor will sell the home and apply the proceeds against the costs of foreclosure, fix-up, resale and the balance of your mortgage. If the proceeds of this sale are equal to or more than this amount, you will have no further liability. If the proceeds of this sale are less than this amount, which is usually the case, there is a resulting deficiency. You may be obligated to pay this deficiency. Like any other debt, the creditor can pursue whatever collection action it deems appropriate.
If the deficiency is forgiven, that is, the creditor elects to not pursue collection of the debt, this may result in "income" to you for IRS purposes. You will be taxed on the amount of the forgiven debt, though you received no money.
The filing of a bankruptcy can cancel this mortgage debt so that you will have no further obligation to pay.
Filing a Chapter 13 bankruptcy may give you the opportunity to stop the foreclosure, keep your home and pay the delinquency over a reasonable period of time, while continuing to make future mortgage payments. To ensure that you have the option to stop the foreclosure you should seek competent legal advice when a foreclosure is filed or sooner.
If your mortgage payments are behind, you should immediately determine your bankruptcy options. Quick action may avoid the foreclosure altogether, and avoid expensive additional costs and fees.
Each person's situation is different. What applies to one person may not apply to another. To determine bankruptcy options as they apply to you, an attorney competent in bankruptcy matters should be consulted.
Can we prevent our car or other possessions from being repossessed?
When you fall behind on payment of a debt that is secured by an interest or lien on your car, furniture, jewelry or other personal items, the creditor can repossess these items. Upon repossession, the items are sold and the proceeds credited to the amount you owe. If the sale proceeds are equal to or more than the debt, you have no further liability. If the sale proceeds are less than the debt, which is quite often the case, you owe the amount of the deficiency. Like any other debt, the creditor can take whatever collection actions it deems appropriate, including filing a lawsuit against you.
A bankruptcy may either cancel this debt so that you have no further obligation to pay, or it may give you the opportunity to stop the repossession, keep the item and pay for it under controlled circumstances at a rate you can afford. In some circumstances - if there is a judgment against you or if the creditor has a non-purchase money lien on certain items - the lien or security interest may be cancelled by the bankruptcy court.
You can act to protect your property!
Each person's situation is different. What applies to one person may not apply to another. To determine bankruptcy options as they apply to you, an attorney competent in bankruptcy matters should be consulted.
Can our monthly payments be reduced to an amount we can afford?
If you file a "straight bankruptcy", your unsecured debts will be discharged, that is, you will not be required to repay them. This allows you to be able to meet future obligations. However, your monthly payments on secured debts, such as first or second mortgage payments or car loans, will probably be unaffected.
If you elect to repay your debts under Chapter 13, then you propose a plan of repayment.
In proposing this plan of repayment you first determine your expected future monthly income, or take home pay. All types of regular income can be considered: wages, commissions, child support, alimony, social security, workers compensation, unemployment or disability benefits, retirement, dividends, etc.
After determining income, you need to set aside an amount to provide for all of the reasonable and necessary living expenses for yourself and your dependents. The amount of income remaining after providing for living expenses is the maximum amount you can afford to pay toward your debts.
With this amount established you can propose a plan to repay your debts, over a three- to five-year period.
If you are unable to repay your debts in full, you may still be able to file a Chapter 13 Plan. This is also called a best effort plan or partial repayment plan. The idea is to pay as much as you can afford and at the end of the plan, any unpaid debt is discharged, which means you don't have to repay this unpaid debt. In any event, Chapter 13 almost always reduces your payments to an amount you can afford.
Each person's situation is different. What applies to one person may not apply to another. To determine bankruptcy options as they apply to you, an attorney competent in bankruptcy matters should be consulted.
What can we do about lawsuits and judgments?
The filing of a bankruptcy prevents any lawsuits from being filed or judgments taken against you. If you file bankruptcy and a lawsuit against you is already filed, it can go no further without permission from the bankruptcy court. If a judgment has been taken, its enforcement can go no further without permission from the bankruptcy court.
If there are potential lawsuits against you, bankruptcy court can offer a forum where the dispute can be rapidly settled. This helps thus avoid the time and expense of litigating the matter in state court.
When filing for bankruptcy relief after a judgment has been taken against you, the obligation to pay the judgment debt may be relieved, or, in a Chapter 13 Plan, you may be able to arrange payment and satisfaction of the judgment over a period not to exceed 5 years.
If the judgment has placed a lien on your assets, you may be able to avoid this lien and remove it as a lien on certain assets such as your home, furniture, appliances. If lawsuits or judgments are either a threat or a real problem, there may be relief available for you!
Each person's situation is different. What applies to one person may not apply to another. To determine bankruptcy options as they apply to you, an attorney competent in bankruptcy matters should be consulted.
Can IRS taxes be avoided?
Most taxes are "non-dischargeable." which means they cannot be avoided by filing bankruptcy. There are exceptions.
One important feature of filing any bankruptcy is that it stops all further action by a taxing authority while the bankruptcy is pending. This includes levies, liens, garnishments, seizures or any other collection procedure.
The treatment of taxes and their dischargeability is different, depending on whether you file Chapter 7 or Chapter 13.
Determining whether any given tax is or is not dischargeable in bankruptcy depends on many factors. Each case is different and a general rule concerning dischargeability of taxes is impossible to state. An attorney specializing in bankruptcy should be consulted in each particular case.
Each person's situation is different. What applies to one person may not apply to another. To determine bankruptcy options as they apply to you, an attorney competent in bankruptcy matters should be consulted.
We are a debt relief agency. We help people file for relief under the Bankruptcy Code.