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Friday, June 24, 2011

Frequently Asked Bankruptcy Questions by Brooklyn, New York Bankruptcy Lawyer

My name is George M. Gilmer, Esq. I am a Brooklyn Bankruptcy and Debt Relief Lawyer.  For you perusal,  I am posting some Frequently Asked Questions regarding Bankruptrcy filings. 


1.         What is Bankruptcy?

Bankruptcy is the legally declared inability of a debtor (person/company that owes money) to pay their creditors (person/companies that lend money).

In the United States, there are 6 types of Bankruptcy under the Bankruptcy Code (covered under Title 11 of the United States Code), however the most common 3 forms of bankruptcy are Chapters 7, 11, and 13.  They are as described follows:

Chapter 7 -  Basic Liquidation for Individuals and Businesses.  Also known as straight bankruptcy, this is the most common, quickest and most straight forward form of Bankruptcy.  Allows for individuals or businesses to eliminate their debts while allowing them to keep certain exempt property.  The amount of the exempt property varies from state to state.

Chapter 11 -  Rehabitation  or Reorganization.  Also known as a Corporate Bankruptcy, this type of Bankruptcy is used primarily for businesses, but can also be used for individuals with substantially large debt.   This type of Bankruptcy allows for a business to continue to operate while paying down their debts according to a structured payment plan.

Chapter 13 – Rehabiliation for Individuals with regular income.  Structures a payment plan to eliminate and/or pay down part of, or all of the individual’s debts.  This is also known as Wage Earner Bankruptcy.  

3.     What is the difference between Bankruptcy and Debt Consolidation?

Debt consolidation is a Bankruptcy Alternative much different from bankruptcy.  Debt consolidation is where an individual or a business takes out one loan to pay off many others.  This loan usually entails assigning collateral (something of value) against the loan, usually a home or other high valued item.  Because the value of the home is given against the loan, there is less risk for the loaning bank which makes the interest rate and/or terms of the loan more favorable for the debtor. 

Bankruptcy is where a court determines that a person or business is legally unable to pay for a debt or debts, and thus the debts are discharged, or written off completely.

Some companies offer services in Debt Consolidation where they negotiate with your creditors to lower interest rates, payments, and/or balances of your debts and combine them into one payment.   This method of consolidation is done without having to be approved for a loan, but rarely offer any type of guarantee as to how much they can lower the balances or interest rates.


4.   How does Bankruptcy affect my credit score?


A Chapter 7 Bankruptcy remains on an individual’s credit report for 10 full years (from the date the bankruptcy is filed).   The bankruptcy can make credit harder to come by and cause loan or credit card terms less favorable, however, high debt to income ratio listed on the credit report and/or debts that have been sent to collections or “charged off” can have the same effect.   Some people have even experienced their credit score to be unaffected or helped by declaring bankruptcy since their debt is fully or heavily relieved.


5.  Can I keep my vehicle if I file for Bankruptcy?


With few exceptions, most people who qualify for Bankruptcy are able to keep their vehicles, provided they keep up with the payments of the original contract of the loan.  Bankruptcy filers do have the option of surrendering their vehicles, eliminating their obligation to pay for it.

The exception(s) to this is when filers have non-exempt equity in the car(s).  If the vehicle(s) are worth a lot of money, and there is little or no money owed on the vehicle(s), the Bankruptcy trustee could take their value into account.  Speak to an attorney about your situation, and they should be able to provide you with a good idea of whether or not you will be likely to keep your car. 


6.     Can I keep my home, condo, or co-op if I file for Bankruptcy?

Again, as with the car issue, with few exceptions,if the equity in the home is exempt, and you keep the payments up according to the terms of the original mortgage(s), you should be able to keep the house.

If you do have substantial equity in the home, but are unable to obtain a debt consolidation loan, you should discuss with your attorney about filing for Chapter 13, instead of Chapter 7.

7.     I’ve already declared bankruptcy;  Can I file again?   How many times can I declare Bankruptcy?

Short answer – Yes.   The U.S. Bankruptcy Code does not specify a maximum number of times one can file bankruptcy, but Courts will scrutinize multiple filings and will deny a person the ability to re-file a case if the Court believes the person's multiple filings constitute an abuse of the Bankruptcy Code. One example is, if a person files multiple cases because they have a medical condition and can't get insurance and medical bills keep piling up, the Court has the option to allow multiple filings. On the other hand, if one keeps voluntarily charging up credit card, getting loans or other unsecured debt and tries to come back to Court to discharge them, the Court has the option to deny the filing.  Speak to an attorney and they can usually give you a good idea as to whether the Bankruptcy trustee would be likely to allow another filing.

8.       Will I lose my tax refund if I file for Bankruptcy?

Keeping tax refunds depends on a substantially large number of factors, including:  when you filed, if you filed with a spouse, how much the tax refund is, whether you’ve taken exemptions such house, cash or car exemptions, and many more.   In many instances, Bankruptcy filers can keep all or a portion of their tax refund.  Discuss this with your attorney and they can give you a general idea of what you would be entitled to.


9.    How long will my Bankruptcy case take to complete?

Chaptery 7 Bankruptcies take approximately 3-6 months depending on the complexity of the case and the backlog of cases in the Bankruptcy court, from the date of filing.  Prior to filing there is case preparation time, which will depend heavily on how fast the attorney can prepare the necessary documents, and how soon the debtor can get the necessary paperwork requested by the attorney to him or her.  

To expedite your case, make sure you have the necessary documentation ready for your attorney, including but not limited to:  3 years of tax refunds, recent paystubs, bills – credit card, utility, rent/mortgage, insurance, etc.; recent credit report from all 3 credit bureaus, loan paperwork, etc.   Talk to your attorney to get advice as to what documents you should bring with you to speed the process along.

10.      Which one should I do – Debt Consolidation or Bankruptcy?

Whether you should file for bankruptcy or try one of the many methods of debt consolidation is definitely something you should obtain the advice of an attorney to decide.   The decision will count on many factors, including how much debt you have, your assets, whether or not you can afford the terms of debt consolidation, your employment, your credit status, and much more.  Discuss all these elements of your situation with your attorney and come up with the best course of action for your specific situation.


11.       Will I be able to get a loan if I file for Bankruptcy?

Yes you can.  Many companies offer recently bankrupt persons car loans, personal loans, and home loans.  The terms and conditions of these loans are not always as great as the terms for persons with good credit, but obtaining a loan is possible.  You may find you will receive many offers after declaring bankruptcy from companies with offers for loans and/or lines of credit.  As always, the best way to raise the chances of obtaining a loan is to keep payments for your secured car or house loans current and/or have established payment history.

NOTE:  Before applying for a loan, always check your credit report.  Be proactive in removing and/or disputing items on your credit report that are paid off, discharged in bankruptcy, or for any reason no longer your debts.   Removing these items will help raise your credit score which is the primary item banks and loan companies look for when you apply for a loan.

12. .  Will I be able to get credit cards if I file for Bankruptcy?

Yes you can.  Many companies offer recently bankrupt persons both unsecured and secured credit cards.  The terms and conditions of these cards are not always as great as the terms for persons with good credit, but obtaining a credit card is possible, and is one of the best steps to rebuilding your credit.  You may find you will receive many offers after declaring bankruptcy from companies with offers for credit cards and/or lines of credit. 

NOTE:  Before applying for a credit card, always check your credit report.  Be proactive in removing and/or disputing items on your credit report that are paid off, discharged in bankruptcy, or for any reason no longer your debts.   Removing these items will help raise your credit score which is the primary item banks and loan companies look for when you apply for a loan.


13.    How will my employment be affected if I file for Bankruptcy?

 Employers, are prohibited (federal law) from firing any employee upon learning that they have filed bankruptcy. If your employer recently learned that you declared bankruptcy and subsequently fired you from your job, you may have a bankruptcy discrimination case.    Most employers never find out about their employees’ bankruptcies unless, as part of a Chapter 13, the payments to the Bankruptcy Trustee come directly out of their paycheck. 

If a private company pulls your credit report, and sees you have declared bankruptcy, they may (and can legally) deny you a job.  Local, State and Federal jobs are prohibited from denying someone a job on the basis of Bankruptcy, and even private sector employers are prohibited from denying any promotion on the basis of Bankruptcy.  Many companies can deny security clearance to people who owe a lot of money. 


14.         How much does it cost to file for bankruptcy?

As with any legal issue, cost of representation depends on a variety of factors.  In Bankruptcy cases, it may depend on the amount of debt, the complexity of the financial situation, whether there are home and car(s) to fight for, student loans, judgments to vacate, how long and how much work it takes to get necessary documentation, and much more.

15.     Why do some attorneys charge more than others? What should I look for?

Attorneys fees can vary substantially.  Again, depending on many factors.  Main factors that justify charging more are:  Experience (years in the business), type of case, whether they charge by the hour or have flat fees, how many employees will work on your case, etc.   However, it should be noted, that simply charging less doesn’t necessarily mean your attorney is inexperienced or doesn’t have many people working on your case.  Many attorneys try to make up for charging less than the standard, by dealing in volume, and vice versa. Find out their experience level, how many cases they’ve closed, what they charge, how many people work on your case, and how long things will take.  A good attorney will always answer these questions straightforwardly.  Consumer Reports states that finding a lawyer via television/radio ads is not a good way to find an attorney, and they usually cost more.  The cost of those advertising campaigns is large, and that usually translates to more cost for the client.  Also, many of those “800 number” law firms divide their cases up amongst members of the firm, so you don’t get the personal service many sole-practitioners can provide.

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