Bankruptcy FAQ

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Bankruptcy FAQ

Charlotte Bankruptcy Lawyer

Take a look at Saffa Law Group's relevant answers to common bankruptcy inquiries and do not hesitate to contact the firm if you need immediate help.

  1. WHAT IS A CHAPTER 7 BANKRUPTCY?
  2. WHAT IS A CHAPTER 13 BANKRUPTCY?
  3. WHAT IS A “CRAM DOWN”?
  4. WHAT IF I HAVE LOANS WHERE I PLEDGED PROPERTY AS SECURITY FOR THE LOAN?
  5. WHAT ABOUT PAY DAY LOANS?
  6. WHAT IS THE “DIVIDEND” IN A CHAPTER 13 BANKRUPTCY?
  7. WHAT IS THE DIFFERENCE BETWEEN A “SECURED” AND “UNSECURED” DEBT?
  8. WILL I LOSE ALL MY PROPERTY IF I FILE FOR BANKRUPTCY?
  9. CAN I FILE A CHAPTER 7 AND KEEP MY CAR?
  10. WHAT IS A BANKRUPTCY TRUSTEE?
  11. THE BANKRUTPCY “AUTOMATIC STAY”
  12. INDIVIDUAL vs. JOINT BANKRUTCY FILINGS
  13. CAN I REBUILD MY CREDIT AFTER BANKRUPTCY?

Answers to Common Questions

WHAT IS A CHAPTER 7 BANKRUPTCY?

Chapter 7 bankruptcies are often referred to as a “liquidation” type of bankruptcy. However, this description is very misleading because the term “liquidation” leads people to think that they will not be able to keep any of their property if they file a Chapter 7. This could not be further from the truth!

Over 95% of our Chapter 7 clients keep all of their property.

When you file bankruptcy, the law allows you to declare certain property as protected or “exempt”. If property is declared exempt, it cannot be sold to get money to repay your creditors. It is through the use of these exemptions that most clients are able to keep all their property.

In a Chapter 7, you can usually keep any secured debts (where there is property that serves as the security for a loan – such as car, home and furniture loans) that you want to keep. However, you need to continue to make the payments on them to keep them. Your unsecured debts (such as credit cards, medical bills, personal loans, etc.) are “discharged” (which means wiped out) entirely and you do not need to repay them to any extent.

There are, however, certain unsecured debts that cannot be discharged in a bankruptcy. These include unsecured debts such as:

  • Alimony
  • Child support
  • Student loans
  • Newer income taxes

If you owe these types of debts and file a Chapter 7, you will still need to make arrangements to repay them sometime in the future. However, during the 3-4 months that your Chapter 7 case is pending, you should not be pursued by even these creditors.

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WHAT IS A CHAPTER 13 BANKRUPTCY? Case Evaluation

A Chapter 13 bankruptcy is a repayment type of bankruptcy wherein over the next 36-60 months (i.e. 3-5 years) you:

  • keep and repay any secured debts that you want to keep (such as home or cars loans)
  • and you repay any unsecured debts (medical bills, credit cards, etc.) at a certain percentage – as payment in full!

At the end of your case, any home mortgage payments are caught up to date, any car loans are paid off and all your unsecured debt is gone (except for unsecured debts such as alimony, child support and student loans).

Clients facing a foreclosure who still want to keep their home typically file a Chapter 13 to do this. In a Chapter 13 your mortgage “arrearage” (i.e. back mortgage you owe) isn’t due right now. Instead, your arrearages are spread out over the next 36-60 months. This enables clients to now afford the payments and keep their homes.

Clients who have had vehicle repossession can also use a Chapter 13 to get their vehicles back. However, they must get their Chapter 13 filed within 10 days of the repossession to do this.

In a Chapter 13 the balance you owe on a vehicle loan is also spread out over the next 36-60 months. This typically reduces the amount clients need to pay towards their vehicle loans each month. Additionally, with Chapter 13 cases, if you’ve owned the car more than 2 ½ years, you only need to repay the car’s current value (vs. how much you owe according to the purchase contract)!

Clients who are having their wages garnished to repay income taxes often file a Chapter 13 to get their tax payments more manageable. This is because in a Chapter 13, your tax debt is also spread out over the next 36-60 months, usually reducing your monthly payment.

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WHAT IS A “CRAM DOWN”?

Cram-downs occur in Chapter 13 bankruptcies and relate to the way in which certain secured debts will be repaid. They typically deal with car loans and furniture loans.

Regarding car loans, if you’ve owned the car more than 2 ½ years, you can file a Chapter 13 and repay only the car’s current value (vs. the balance owed per the purchase contract) as payment in full! The creditor could possibly object and claim the car is worth more than you think it is, but these objections are usually worked out.

Regarding furniture loans, if you’ve owned the property more than 1 year, you can file a Chapter 13 and repay only the furniture’s current value (vs. the balance owed per the purchase contract) as payment in full! Just like with the car loans, the creditor could possibly object and claim the car is worth more than you think it is, but these objections are usually worked out.

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WHAT IF I HAVE LOANS WHERE I PLEDGED PROPERTY AS SECURITY FOR THE LOAN? Bankruptcy Attorneys

These types of loans are referred to as “ non-purchase money loans”. This is because you already owned the property you pledged as security and did not use the money loaned to you to purchase the property.

If you obtained a loan by pledging property which you already owned as security, you can file a Chapter 7 bankruptcy and wipe out the debt and still keep the property.

If you are filing a Chapter 13 bankruptcy, the loan is treated as an unsecured debt and is repaid at a percentage (which can be a little as 1-2%) as payment in full.

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WHAT ABOUT PAY DAY LOANS?

If you had taken out a pay day loan within 90 days of filing for bankruptcy, the creditor could claim the loan is “non-dischargeable”. Otherwise:

  • you can file a Chapter 7 and wipe out the pay day loan(s) entirely
  • you can file a Chapter 13 and repay the loan at a certain percentage as payment in full.

Pay day loan companies are, often times, not the most ethical companies in the world. They’ll often tell you that you can be arrested for not repaying their loan or if you file bankruptcy. This is absolutely not true. You cannot be arrested for a “worthless check” because at the time they accepted your check they knew you didn’t have the money in the bank for it.

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WHAT IS THE “DIVIDEND” IN A CHAPTER 13 BANKRUPTCY? Lawyer

In a Chapter 13 bankruptcy you:

  • keep and repay any secured debts that you want to keep (such as home or cars loans)
  • and you repay any unsecured debts (medical bills, credit cards, etc.) at a certain percentage – as payment in full!

The percentage that your unsecured creditors are paid is called the “ dividend”.

Not everyone will pay the same dividend when filing a Chapter 13. There are case specific factors which determine what your dividend will need to be.

Clients who don’t own a lot of property and don’t make a huge income can generally pay a very low dividend.

Factors which could lead to you paying a higher dividend to your unsecured creditors include:

  • if you have a lot of equity in property (i.e. own property that is worth a lot more than what is owed on it)
  • if you have a large income

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WHAT IS THE DIFFERENCE BETWEEN A “SECURED” AND “UNSECURED” DEBT?

A secured debt is a debt has property that serves as security or “collateral” for the loan and that can be taken back if the loan isn’t repaid. Examples include:

  • A car loan where the car is the security and can be taken back (repossessed) if the loan isn’t repaid.
  • A home loan where the home is the security and can be taken back (foreclosed) if the loan isn’t repaid.

Unsecured debts have nothing serving as security or collateral which can be taken by if they loan isn’t repaid. Examples include:

  • Medical bills
  • Credit card bills
  • Some personal loans
  • Student loans
  • Income tax

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WILL I LOSE ALL MY PROPERTY IF I FILE FOR BANKRUPTCY?

A very common misperception about bankruptcy is that you lose all of your property if you file.

This is absolutely not true.

Over 95% of our Chapter 7 clients keep all of their property.

When you file bankruptcy, the law allows you to declare certain property as protected or “ exempt”. If property is declared exempt, it cannot be sold to get money to repay your creditors. It is through the use of these exemptions that most clients are able to keep all their property.

If you are filing a Chapter 7 and have a lot of very valuable property (i.e. that’s worth more than the amount of the property exemptions afforded to you), then technically the bankruptcy trustee could look to sell those un-exempt assets to get money to repay your creditors. However, even in these circumstances, your attorney can often times make a deal with your Chapter 7 trustee wherein you keep your property and repay the bankruptcy estate a certain amount over the next 12-24 months.

If you are filing a Chapter 13 and have a lot of very valuable property (i.e. that’s worth more than the amount of the property exemptions afforded to you), this could lead to you needing to repay your unsecured creditors more.

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CAN I FILE A CHAPTER 7 AND KEEP MY CAR? Car

Yes.

Over 95% of our Chapter 7 clients can file and keep their vehicles. However, you’ll need to keep making the car payments if you still owe money on the car and want to keep it.

You have “equity” in a motor vehicle if the vehicle is worth more than what you owe on it.

When filing for Chapter 7 bankruptcy, you are afforded certain “ motor vehicle exemptions” you can use to protect any equity you have in motor vehicles. It is through the use of these motor vehicle exemptions that you can file for Chapter 7 and keep your vehicle(s).

The only way a trustee could look to sell your vehicle would be if you had a great deal of equity in it (i.e. it’s worth a lot more than you owe on it). However, even in these circumstances, your attorney can often times make a deal with your Chapter 7 trustee wherein you keep your property and repay the bankruptcy estate a certain amount over the next 12-24 months.

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WHAT IS A BANKRUPTCY TRUSTEE?

When you file for bankruptcy, a bankruptcy “estate” is created. The bankruptcy estate is comprised of all the property you owned when you filed.

A bankruptcy “trustee” is also appointed. It is the trustee’s job to look after the best interests of the bankruptcy estate and to verify that you and your creditors are being treated fairly. Trustees are often times attorneys in the community who also work as bankruptcy trustees.

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THE BANKRUTPCY “AUTOMATIC STAY”

When you file for bankruptcy, an “automatic stay” goes into effect. This is an automatic stopping of any and all collection efforts. This includes any:

  • Pending lawsuits
  • Repossessions
  • Wage garnishments
  • Calls from creditors
  • Collection letters from creditors

Creditors who knowingly violate the bankruptcy automatic stay are subject to having actions brought against them and having to pay damages for their violation.

Clients facing a foreclosure also benefit from the automatic stay.

If you are filing a Chapter 13 bankruptcy I order to keep your home, any pending foreclosures are stopped when you file.

If you are filing a Chapter 7 and plan on surrendering your home, the automatic stay still goes into effect upon your filing and usually gives you an extra 2-3 months living there before you need to move out. This is because when you file, and the automatic stay goes into effect, the mortgage lender must stop the foreclosure proceedings and not resume until the lender gets “relief from court” (i.e. permission to re-start the foreclosure proceedings). This entails filing motions with the bankruptcy court and attending hearings which takes time.

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INDIVIDUAL vs. JOINT BANKRUTCY FILINGS

Married clients considering filing for bankruptcy often ask if they both need to file.

No. A married person can file an individual bankruptcy. This may appropriate if all the debt is in one spouse’s name only. This way, the bankruptcy filing will only be on one spouse’s credit history.

However, if both spouses are responsible certain debts and only one spouse files, while the filing spouse’s responsibility for the debts would be wiped out (discharged) through bankruptcy, the non-filing spouse could still be held responsible.

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CAN I REBUILD MY CREDIT AFTER BANKRUPTCY? Credit Cards

Another common misperception about bankruptcy is that filing for bankruptcy either destroys your credit or make it impossible for you to get credit in the future. This is simply not true.

Often times, bankruptcy can be the quickest and cheapest way to rebuild your credit. How can this be?

Let’s say Joe is a person who has $20,000.00 in credit card bills and who is barely able to make his minimum monthly payments on them.

If Joe was to file a Chapter 7 bankruptcy, this debt would be wiped out (i.e. “discharged”) in about 3 months, and he could then immediately begin to rebuild his credit. After receiving his bankruptcy discharge, there are relatively simple steps Joe could take to get his credit score over 700 in as little as 12-18 months!

On the other hand, if Joe didn’t file for Chapter 7, and instead kept trying to make payments toward this debt, he’d likely be paying on this debt for many, many years to come. He’d also continue having to pay the high interest rates and would continue having a low credit score the entire time.

Most people don’t realize that you will be able to get credit immediately after filing for Chapter 7 bankruptcy, In fact, most clients report being solicited for credit cards while their bankruptcy case is still pending! This is probably because the credit card companies know that you are only allowed to file for Chapter 7 every 8 years, so you wouldn’t be able to charge large amounts and simply file for Chapter 7 again.

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