What's a bankruptcy?
The U.S. Congress enacted the bankruptcy law to permit qualifying persons and firms to obtain relief from debts. Bankruptcy is federal law because bankruptcy is mentioned in the U.S. Constitution (although there are still wide variations from state to state).
I'm broke. Do I need a lawyer for this?
Usually. While some consumers file their own cases, the Bankruptcy Code is about as complicated as the Federal Income Tax Code (both laws are written by those Senators and Representatives back in Washington, D.C.). Most people feel more comfortable having assistance filing their tax returns and the same is true with bankruptcy.
So what's it gonna cost me?
The court filing fee is between $185 and $200. Fees for the lawyer are on top of that. Legal fees of anyone in bankruptcy are subject to the review and approval of the Bankruptcy Court. Total fees for your case depend largely on the complexity of your situation. Most lawyers will give you a "ballpark figure" after reviewing your financial picture.
I heard a joke about finding salvation in Chapter Eleven. Is that where I go?
Not usually. Ch.11 of the bankruptcy code is a reorganization section usually reserved for larger corporations and businesses. For consumers, the most common types of bankruptcies are Ch.7 and Ch.13.
Chapter 7 is a liquidation chapter. The debtors "surrender" assets to the bankruptcy trustee who may liquidate any of their nonexempt assets. Trustees do not administer assets with little or no equity. In exchange, debtors are discharged from all dischargeable debts.
Chapter 13 is a reorganization chapter, reserved for individuals (and conceptually similar to the business' Ch.11). A qualifying individual or a married couple reorganizes their debts through a court-approved plan, usually with monthly payments over time. Chapter 13 is good for wage earners and sole proprietors with a regular source of income. In Ch.13, the debtors usually retain possession of their assets.
I'm still interested. So how do I choose between chapters?
Now you're asking about applying the law to a particular fact situation. There are just too many variables to cover in these FAQs. To help yourself (and your lawyer), do a little homework:
- List all your debts, their purposes, and any collateral or other security;
- List all your assets, including anything of any value (house, cars, boats, computers, tools, accounts, investments, claims you can make against others, etc.);
- Write out a monthly budget, including all your sources of income and all your expenses.
A debt-free life sounds too good to be true. Will all my debts be wiped-out in bankruptcy?
No. Claims against you can be placed into three broad categories: 1) nondischargeable debts (certain taxes, child support or alimony support, as well as other types); 2) debts which will be discharged (most IOUs, credit cards, contract and negligence claims); and 3) those debts which will be discharged unless the creditor timely and successfully objects to the dischargeability of the claim.
Can I keep any of my stuff and still go bankrupt?
Absolutely. The job of your lawyer is to maximize the assets you retain. The Bankruptcy Code allows "exemptions" for certain types of property you can keep, free and clear of the claims of your creditors and the bankruptcy trustee. Frequently claimed exemptions in Oregon are for a homestead, a vehicle, household goods, tools of the trade, and a "grub stake." Exemption procedure and amounts vary from state to state.
I just paid-off my car loan and a stranger offered me $20,000 for the rig (it's really nice). Can I keep the car, or the money, and still go bankrupt?
Probably not. While a vehicle would be exempt in Oregon, your equity is way over the limit. A liquidating Ch.7 trustee would probably take the car, or the money, to apply pro rata to your creditors.
I can't lose my wheels like that, but my creditors are calling all the time. I make good money, but it's never enough to make a dent in the bills. Am I out of luck?
A major reason to consider reorganizing under Ch.13 is to retain nonexempt assets (like your car). With any bankruptcy, the calls and other contacts from creditors must stop. Ch.13 would allow you to keep the car, but you would need to make payments to a Ch.13 Trustee, usually once a month by payroll deduction; the trustee would follow your court-approved plan and send the money to your creditors. For the court to approve your Ch.13 plan, your creditors must receive at least as much as they would get in a Ch.7 liquidation and you must commit all your disposable income to the plan for at least three years (Ch.13 can go longer, if necessary).
What's so good about Ch.13 if I still have to pay all my creditors?
Most people pay less than the full amount of their debts over the life of the plan (even including the lawyer and trustee fees). Many more types of debt can be discharged in Ch.13, compared to Ch.7. Nondischargeable taxes and back support can be paid through a Ch.13 plan. Ch.13 can stop foreclosures and missed mortgage payments can be caught-up. And remember, you keep your stuff!
Won't bankruptcy hurt me later on?
Filing bankruptcy is serious and should not be taken lightly. You and your lawyer should consider all the pros and cons. If you decide you need a "fresh start" now, how the future turns out will depend mostly on you! Nationwide, bankruptcy filings are at an all time high. Is that because people don't care to honor their IOUs; or is it because the bankers, department stores credit card companies and others are pushing too much "easy credit?"
