Bankruptcy Questions and Answers
(Before your interview with your attorney)
Are there different kinds of bankruptcies? I hear people talking about chapter 11’s, 13’s, etc.
ANSWER: There are only two types of bankruptcies available for individuals, Chapter 7 and Chapter 13. A Chapter 7 is what is sometimes known as a “straight” bankruptcy. You list all your debts and most of them get discharged (wiped out), except those you want to keep and pay for, such as a car payment. A Chapter 13 is also known as a “reorganization” or a wage earner. Under that plan you pay a certain amount of money per month to a bankruptcy trustee for a 3 or 5 year period, thereby paying off some or all of your debts. A Chapter 7 is the plan of choice for most consumers since it enables them to get a fresh start.
What effect would a bankruptcy have on my credit rating?
ANSWER: A bankruptcy can stay on a credit rating for 10 years. That doesn’t mean you can’t get credit… it just means it’s going to be there. Whether you will be able to get credit or not is an individual decision made by each lender. For example, after bankruptcy, a conservative bank might not be willing to extend credit whereas a small finance company or car dealer might have no problems at all with extending credit. In fact, some lenders consider people who have bad credit histories even more credit worthy after a bankruptcy because they know that it will be at least six years before another Chapter 7 Bankruptcy can be filed.
Are there any other adverse consequences to bankruptcy besides my credit rating?
ANSWER: Potential employers, insurance companies and landlords to whom you submit applications are entitled to ask whether or not you have ever filed a bankruptcy, and at times that can hurt your application, depending on the circumstances. Otherwise, there are no other serious adverse consequences. You are not denied voting rights or any other civil entitlements, nor are public utilities allowed to deny service to you because of a bankruptcy filing.
Is my employer notified?
Do I have to put down debts I intend to pay, like my car payment house payment, relatives that have loaned money to me, etc.?
ANSWER: YES! The Bankruptcy laws require you to list everyone to whom you owe money because you are not allowed to favor one creditor at the expense of the others. In fact, if you file bankruptcy you are required to sign a declaration under pain of federal criminal prosecution for perjury and false statement that you have listed all your debts. However, there are provisions for keeping and paying off debts like car payments which will be explained below.
Do I have to put down debts that have a co-signer and, if so, how does that affect the person who co-signed on my loan?
ANSWER: Yes. You must either continue making payments or surrender the collateral to the creditor. If you do not continue making payments, the co-signer will be obligated to make the payments or risk collection attempts, which may result in bad credit for the co-signer. If you surrender the collateral to the creditor, the co-signer still may be obligated for any loan deficiency in the collateral if it is sold for less than the loan amount.
What information do I need before I see the attorney?
ANSWER: You probably remember being told on the telephone to make a list of all your bills. What we need on that list are three things:
- The approximate balance due;
- The approximate month and year (not the exact date) the debt was incurred. For example, if it’s a doctor bill, the month and year you went to the doctor. However, on credit card bills they want the month and year you last used the card. DO NOT spend hours and hours figuring out dates! The main thing they’re looking for here is to make sure someone doesn’t run up a bunch of debts one month and file bankruptcy the next.
- The name, address and zip code of each creditor.
Will this be published in a newspaper?
ANSWER: We know of no newspaper of general circulation that is currently publishing consumer bankruptcy filings. However, bankruptcy filings are a matter of public record and that policy is certainly subject to change.
I didn’t make a list, but I brought a credit report. Is that ok?
ANSWER: Maybe. Keep in mind that a credit report might not list everyone in the world you owe money to: if you don’t give us the information listed in paragraph 7, that debt won’t be discharged and you’ll still owe the money.
What will I lose in terms of my property if I file bankruptcy? Will they come to my house and go through my things?
ANSWER: In the vast majority of circumstances, you will not lose any property you own free and clear because it will be within the limits set by the Missouri legislature that a debtor can keep free from attachments by Courts and creditors. Your attorney will explain this to you in more detail. No one will be coming to your home and going through your things.
What happens to property I bought on time and is still not paid for like my car, house, stereo, washer and dryer, etc.?
ANSWER: You have two basic choices. You can let the property go back and walk away from the debt, or you can make arrangements to keep and pay for the property, usually on exactly the same terms that you have been all along.
Will a bankruptcy get rid of all my debts?
ANSWER: Yes, with a few exceptions, the primary among those being child support, alimony, taxes and federally insured loans recently incurred. Your attorney will discuss any debts that may not be dischargeable with you in more detail.
How can I get a list of all my creditors?
ANSWER: Through your memory and your records. You can ask the local credit bureau to run you a printout, but there is no guarantee that they will have everyone down.
What if I find out that I forgot to put down a creditor?
ANSWER: If the creditor is not listed in the bankruptcy, the debt won’t be discharged and the creditor will have every right to come after you to try to collect. We can amend your list to add creditors, but it is somewhat difficult and time consuming and an additional fee is charged and collected before doing so. It therefore behooves you to make sure you get everybody listed.
Is there any certain amount of debt I have to have in order to declare bankruptcy?
ANSWER: No. A bankruptcy can be filed by anyone who considers himself insolvent, whether the debt is several hundred dollars or several hundred thousand.
Should I do anything special with my check account?
ANSWER: Yes. Unless you’re careful, you can get caught in a trap as follows: Assume you deposit a check for $2,000.00 on August 30, write and mail $1900.00 worth of checks to pay your bills, then file Bankruptcy (your attorney actually filing it with the court on the Internet) on Aug. 31. In your mind, you have $100.00. However, trustees will require production of your bank statement as of the date of filing, and if your bank shows you had $2000.00 in your account on that date the trustee can and will demand you pay it. And they don’t care that you wrote checks in reliance on that deposit, because they don’t want those people treated better than those on your list of creditors. We’re not suggesting that you be less than 100% honest in disclosing all of your assets. We are suggesting that it’s safe practice to keep a very low balance in your accounts until the day after your case is actually filed.
Isn’t there some class I have to take before my case can be filed?
ANSWER: Yes, there is, but you don’t have to go anywhere. The only way it can be done is by phone or on-line. By the way, when you complete the class, it’s only good for six months! If you delay the process that long for some reason, you’ll have to take it again!
A SPECIAL NOTE:
Most of us live paycheck to paycheck, and when we have a major disruption in our cash-flow, such as a divorce, illness, layoff, etc., it puts many of us into a financial hole that we can not get out of no matter how hard we try. For most people, bankruptcy is not a moral failing but simply the only recourse to being tossed about by powerful economic forces over which they have no control. That’s why bankruptcy laws were passed hundreds of years ago in England, and why bankruptcy is sometimes known as the American Safety Net.