Bankruptcy Frequently Asked Questions
- What Types Of Bankruptcy Are Most Commonly Filed By Individuals?
- What Do You Charge And When Must It Be Paid?
- How Do I Decide If Any Type Of Bankruptcy Is The Right Option?
- How Do I Go About Filing A Chapter 7 Or Chapter 13?
- What Property Is Protected?
- What Are The Advantages Of A Chapter 13 Over A Chapter 7?
- What Are The Advantages Of A Chapter 7 Over A Chapter 13?
- What Effect Will Bankruptcy Have On Someone Who Co-Signed A Loan With Me?
- When Do I Get Relief From My Creditors?
- What Effect Will Bankruptcy Have On My Credit?
- Are Creditors Who Hold Collateral (Secured Creditors) And Creditors Who Have No Collateral (Unsecured Creditors) Treated Differently In Bankruptcy?
- Can I Leave Some Creditors Off My Bankruptcy?
- If I Am Behind On The Payments On My House, Can Bankruptcy Help Me To Retain The House Or Stop A Pending Foreclosure?
- If I File Chapter 13, How Much Will I Have To Pay Each Month And How Many Months Do I Pay?
- Can I Get Relief From Unpaid Taxes In Bankruptcy?
- Can I Include Student Loans In My Bankruptcy?
- Do You Handle Other Types Of Cases?
Chapter 13. You pay a fixed monthly payment determined by you and your lawyer to the Chapter 13 trustee for distribution to your creditors. The monthly payment is based on your “projected disposable income,” which is generally the amount of your take-home pay, less your reasonable monthly living expenses. Payments to secured creditors (excluding home mortgage payments) may be restructured (lowered) and paid from the funds turned over to the Chapter 13 trustee. Payments to unsecured creditors may range from 0 percent to 100 percent. An “automatic stay” is entered immediately upon filing with the court. Your creditors cannot call you or take any action to collect the debt without permission from the Bankruptcy Court. Most Chapter 13 plans pay only a small percentage of the actual debt owed. The remaining balance is discharged.
In some cases, the monthly payment on motor vehicle loans can be substantially reduced by paying the value of the vehicle through the Chapter 13 trustee. The monthly payment is made for at least 36 months, but never more than 60 months. Filing a Chapter 13 stops lawsuits, foreclosures and collection calls. You receive a “bankruptcy discharge” after you make all the monthly payments. Free Case Evaluation
Chapter 7 Chapter 7 is referred to as “liquidation bankruptcy.” You can keep exempt property which includes most household furniture and appliances, up to $35,000 equity in your home, and $7,500 or less equity in one vehicle. (If Louisiana Exemptions apply.) Additionally, if there is a lien on any personal property, including a vehicle, and the property is not worth more than the amount owed to the secured creditor, you may keep the property if you sign an agreement to continue to pay and be legally responsible for the debt. Most creditors require that you are contractually current in order to reaffirm a debt. Upon the filing of a Chapter 7 an “automatic stay” is entered. The automatic stay stops lawsuits, foreclosures and collection calls. Generally, you will receive a “bankruptcy discharge” relieving you of your obligation for the debts within five (5) months of the filing. Free Case Evaluation
Free consultation with experienced bankruptcy attorney — The first office visit with one of our experienced bankruptcy attorneys to help you decide what is best for you is free. If a decision is made to file a Chapter 13 or Chapter 7, the court costs and fees will generally be paid as set forth below.
Chapter 13 — No upfront fee — Fee not paid in advance — We do not require that the fee be paid in advance because the fee is included in the monthly payments made to the Chapter 13 trustee. The standard amount of the fee in most of Louisiana is $3,000 – $3,600. Should additional services not included in the standard fee become necessary, we will generally charge fees pursuant to the court’s standing order.
Chapter 7 — Our fee and expenses for a typical “consumer” Chapter 7 are between $1,450 and $1,800. The exact amount depends upon the complexity of your case. We will quote the fee and expenses at the initial interview. If you need to pay the fee and expenses over several months we can assist you during this time period.
Court costs — In all cases, court costs must be paid to the clerk of court. We usually require the court costs to be paid before we begin preparing the bankruptcy petition, schedules and statement of affairs. Court costs for a Chapter 13 are $310.
However in some instances, in a Chapter 13 the court costs may be paid in installments with an initial payment of $155. If for any reason the bankruptcy is not filed after the documents have been prepared, the amount paid for court costs will be applied to the services rendered. Court costs for a Chapter 7 are $335.
Credit counseling and debtor financial management fees — Internet or telephone credit counseling is required in almost all circumstances. We will assist you with this. The credit counseling fee is generally less than $20; however, if your income is low, this fee may be waived. You also must complete a debtor financial management course after you file. Some Chapter 13 trustees pay for providing this service at no charge. Otherwise, the fee is usually less than $20, but if your income is low, this fee may also be waived.
If you decide to retain us, the initial consultation services will be included in the fee quoted to you, which will be contained in a separate contract signed when you retain our office.
If it is obvious that you cannot pay all your obligations or if attempts to work out a payment schedule with your creditors have failed, and you are facing the possibility that a creditor may file suit and/or seize assets, you may obtain relief under a Chapter 7 or Chapter 13 of the Bankruptcy Code. When a bankruptcy petition is filed, it stops all collection attempts by a creditor. It allows you either to pay all or a portion of your debts over a period of time or eliminates the debts entirely through a bankruptcy discharge. Your attorney can advise you of your rights and options at your first appointment. Free Case Evaluation
Once you determine that you may need to file either Chapter 7 or Chapter 13, we ask that you complete the “Bankruptcy Questionnaire” given to you. If you do not have the questionnaire, you may call our office to obtain a copy. You must provide all the information requested on this questionnaire so that we can prepare the petition and schedules that are to be filed with the Bankruptcy Court. Every blank should be filled in.
If the answer is no or none, put “no” or “none.” If the question is not applicable to you, put “N/A.” If you have questions about how to complete the Bankruptcy Questionnaire, contact the legal assistant assigned to your case. If you need to consult further with the attorney, contact our office to set up an office appointment or telephone appointment.
After you have returned the completed questionnaire and paid the court costs, one of our legal assistants will prepare the documents to be filed with the Bankruptcy Court. The legal assistant may contact you to go over the questionnaire in order that the bankruptcy schedules and statement of affairs can be completed. After all the information is completed, the legal assistant will make an appointment for you and your attorney to review and sign the documents prior to filing.
Exempt property is that property you can keep if the property is not secured by a debt or if the debt is paid in full. Even if this property is not paid for, you may retain the property in a Chapter 13 by paying the value of the property plus a reasonable rate of interest over the term of the plan. In a Chapter 7 you may be able to retain the property if you continue to make the required payments. One purpose of bankruptcy is to allow a person who has become overburdened with debt to get a “fresh start,” and retain necessary property.
Bankruptcy also provides an equitable distribution of property to your creditors. The law allows you to keep exempt property. The exemptions are in various categories. Individuals who file bankruptcy in Louisiana are usually entitled to those exemptions allowed by Louisiana law and certain federal exemptions. Among the exemptions a person is entitled to claim are the following:
Assuming Louisiana law applies, you may keep up to $35,000 of equity in your residence, if you’re the owner of the property, individually or with your spouse. “Equity” is the value of the property less all the mortgages and liens against the property. If a husband and wife both own the residence, both spouses are entitled to share the same $35,000 exemption. You must also continue making the monthly mortgage payments.
The clothing, bedding, linen, chinaware, nonsterling silverware, glassware, living room, bedroom and dining room furniture, cooking stove, heating and cooling equipment, one noncommercial sewing machine, equipment for required therapy, kitchen utensils, pressing irons, washers, dryers, refrigerators, deep freezers, electric or otherwise, used by you or a member of your family are exempt (R.S. 13:3881 A(4)(a)).
- One vehicle per household with $7,500 or less equity
Tools Of Trade
That property which fits any of the descriptions below, which is used by you or your spouse in the exercise of the trade, calling, or profession by which you or your spouse earn your livelihood.
- One utility trailer
The cash value of life insurance and the payments under annuity contracts are generally exempt. However, there are exceptions. You should discuss these exemptions with the attorney.
Generally, all pension funds, all individual retirement accounts, all KEOGH plans, all simplified employee pension plans, and other plans qualified under Sections 401 or 408 of the Internal Revenue Code are either not property of the bankruptcy estate or are exempt; however, there are a number of exceptions. You should discuss this with your attorney.
Miscellaneous exemptions include the family portraits, one or two up to $2,500 of firearms and accessible per person, musical instruments played or practiced on by you or a member of your family, wedding rings or engagement rings worn by either spouse — provided that the ring does not exceed $5,000 in value. There are other less-common exemptions available to you, and there are exceptions to the exemptions identified above. You should discuss these exemptions with one of the attorneys.
You may also keep nonexempt property in a Chapter 13 by paying the value of the property over the term of the plan to unsecured creditors.
A Chapter 13 generally allows the individual to keep all of his or her assets. If you have property that is not exempt under the law and has value, you may keep these assets in a Chapter 13 by paying the liquidation value over the term of the plan. The Chapter 13 trustee does not have the power to force the sale of any of your property.
There are many reasons why you may choose to file a Chapter 13 as opposed to a Chapter 7. If you are behind on your mortgage payments and want to retain your home, you may pay the missed payments over time in a Chapter 13. A Chapter 13 may also be used to restructure and lower your vehicle payments. In a Chapter 7, you most likely would be required to bring the missed payments current immediately. Payment of the missed payments over time can be easily arranged in a Chapter 13.
A Chapter 13 may also be useful if you owe money for federal or state taxes. Although generally federal and state taxes owed for the previous three years cannot be discharged, you may be able to be protected by the Bankruptcy Court while you pay the taxes over time without interest or further penalty in a Chapter 13. A Chapter 13 is also useful when you have the ability to make some payment to creditors and have a desire to do so. Most Chapter 13 cases pay only a small percentage of the unsecured debts. If you previously filed a Chapter 7 and received a discharge, you cannot file another Chapter 7 until eight years after the filing of the first Chapter 7. However, you could file a Chapter 13 within the eight-year period following the filing of a Chapter 7.
In a Chapter 7 you generally can:
- Eliminate most unsecured debt immediately without any payment.
- Keep furniture, appliances, and similar household items, wedding rings/engagement rings, and other exempt property the same as you would in a Chapter 13.
- Keep one vehicle per household with $7,500 or less equity and keep multiple vehicles that are worth no more than the amount owed on the vehicle by continuing to make the monthly payments to the creditor.
In addition to the one exempt vehicle, generally trustees will not take vehicles worth less than $1,000.
Another person who is jointly liable with you on a debt is known as a “co-debtor.” When you file bankruptcy the co-debtor remains liable on the debt (unless the co-debtor is your spouse and you file a joint petition). The mere fact that you file bankruptcy may not negatively impact your co-debtor’s credit score. Of course, if you do not pay and if the co-debtor fails to maintain the payments on the debt, the failure to pay the debt will likely be reported by the creditor to the credit bureau. If you choose, you can propose to protect the co-debtor by paying the debt through your Chapter 13 plan, subject to court approval.
In a Chapter 7 case the creditor is free to pursue collection from the co-debtor immediately. In a Chapter 13 case the creditor is prevented from collecting from the co-debtor if the plan proposes full payment of the co-signed debt.
When you file a Chapter 13 or Chapter 7 petition, the court enters an “automatic stay” prohibiting all creditors listed in your petition 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 of the bankruptcy takes place when the bankruptcy petition is electronically received by the bankruptcy clerk. The petition is filed electronically with the bankruptcy clerk after you review and sign the bankruptcy petition and schedules, which we will prepare from the information forms that you complete.
If you are concerned about what your creditors will do between now and the filing of bankruptcy, it has been our experience that when you inform unsecured creditors that you have retained us to file bankruptcy and they have called us to confirm we represent you, the creditors have generally stopped making telephonic demands.
Please do not tell creditors that you have retained us until you have paid the $310 in a Chapter 13 case or the $335 in a Chapter 7 case.
Do not tell a bank or credit union in which you have funds on deposit that you intend to file bankruptcy. A bank, credit union or similar institution may offset any funds you have on deposit in your account to pay your debt to that bank or credit union.
If you owe a debt to a creditor to whom you do your checking or savings with, the bank or credit union has the option to freeze your account upon receiving notice of the filing of the bankruptcy petition.
You may want to switch your account to a financial institution to which you do not owe money. If the bank or credit union at which your account is located is to be paid in full under the bankruptcy, it may not be necessary to change the location of your accounts.
Any bankruptcy will be reflected in your credit history. When you apply for credit, each creditor makes its own decision as whether to extend credit or not. The fact that you have filed bankruptcy is obviously a factor that the creditor will consider along with other factors such as your income, whether or not the loan is to be secured by collateral, the amount of your other debts, etc.
Many creditors rely upon credit ratings from credit bureaus in making a decision to extend credit. The Fair Credit Reporting Act in general requires a credit bureau to delete adverse information from your file after seven (7) years.
However, in the case of a Chapter 7, the information generally remains on file for ten (10) years after you file the petition.
A Chapter 13 plan may propose as much as a 100 percent payment to unsecured creditors or may propose as little as no (zero) payment to unsecured creditors. Chapter 13 payments always involve at least some payments to either secured (debts on which the creditor has collateral) or priority unsecured claims (for example, taxes due).
During the time that your Chapter 13 plan is pending (generally not less than three years nor more than five years), you are not allowed to incur credit without court or trustee approval. You will receive your discharge in a Chapter 13 case only after you have completed all the payments required under your plan.
In a Chapter 7 case, you will generally receive your discharge within five (5) months. Although a Chapter 7 petition is generally thought of as being less acceptable to the creditors, you are nevertheless in a position to begin reestablishing your credit in as little as five months after the filing, compared to the three- to five-year period in a Chapter 13.
Reestablishing your credit is a matter of the individual potential lender’s requirements, the amount of time that has passed from your bankruptcy, the other obligations that you still owe (if any), your income and many other factors.
Most clients who file bankruptcy already have seriously damaged credit scores because of late payments, defaults on obligations, and in some cases, lawsuits and judgments. In some of these cases, the bankruptcy has little additional adverse effect on the client’s credit.
Are Creditors Who Hold Collateral (Secured Creditors) And Creditors Who Have No Collateral (Unsecured Creditors) Treated Differently In Bankruptcy?
Yes. In a Chapter 13, a secured creditor is entitled to receive at least the value of his collateral, plus interest at a reasonable interest rate, if you decide to keep the collateral. Unsecured creditors are not guaranteed any payment and will receive only a pro rata payment based upon the funds available after all priority and secured claims have been paid.
In a Chapter 7 proceeding, you will generally have three choices with respect to each secured creditor:
- Surrender to the creditor the property which secures the obligation, or;
- Continue to pay the indebtedness and offer to reaffirm (re-obligate) yourself on the indebtedness, or;
- Redeem the property for its current fair market value. You may redeem property that is for personal, family or household use, by paying in a lump sum, the current value of the property, even if the current value is much less than the balance due to the secured creditor.
The law provides that you should include all creditors when you file bankruptcy. You can voluntarily pay some of these creditors after you file Chapter 7 bankruptcy, but these creditors should not be left off the list of creditors in the bankruptcy. You must continue to pay your home mortgage and vehicle loans if you intend to keep the property. In the case of a vehicle or any other personal property you have the additional option of redeeming the property.
In a Chapter 13, you must list all debts; however, it may be possible to pay certain debts directly by you. Debts that you may be able to choose to pay directly may include your home mortgage.
If I Am Behind On The Payments On My House, Can Bankruptcy Help Me To Retain The House Or Stop A Pending Foreclosure?
Yes; however, the bankruptcy petition must be signed by you and your attorney and filed with the clerk of court before the sheriff’s sale. Also, a bankruptcy cannot change the terms of your note and mortgage on your home.
A Chapter 13 plan can provide a method to cure the arrearage (the amount past due) over a reasonable period of time, conditioned upon you continuing to make the future regular monthly payment.
Normally, a Chapter 13 plan provides for 36 monthly installments (three years). A Chapter 13 plan may provide for payments up to 60 months (five years) if necessary. If your income exceeds the median income for your household size, a 60-month plan may be required.
The payments are based on your “projected disposable income.” This is usually calculated by subtracting your normal monthly expenses (excluding amounts paid to creditors through the plan) from your take-home pay.
Creditors must receive at least what they would have received in a Chapter 7 bankruptcy proceeding.
Federal and state income taxes are normally not discharged in bankruptcy. However, some taxes more than three years old for which you timely filed a return can be eliminated (discharged). Past due taxes that cannot be eliminated may be paid in a Chapter 13 without interest over the term of the plan.
Student loans are generally nondischargeable. This means that even in a Chapter 7 bankruptcy you will generally have to pay your student loans. There are special circumstances that can result in a discharge of student loan obligation but the special circumstances are rare.
You should discuss this issue with one of the attorneys. These loans can be included in your Chapter 13 plan. Even if you do not pay the entire student loan during the term of the Chapter 13 plan, you will be protected from the student loan creditor while you are in a Chapter 13.
All the attorneys at Simon, Fitzgerald, Cooke, Reed and Welch, handle primarily bankruptcy cases.
If you need assistance in connection with other types of cases such as a personal injury claim, motor vehicle accident claim, Social Security claim, medical malpractice claim, worker’s compensation claim or other claims, we will be happy to refer you to an attorney or law firm that we are confident of to handle your case in a professional manner.
Over the years, we have developed working relationships with many of the local attorneys who specialize in other areas of practice and can assist you in finding an attorney to represent you in those areas.