What Happens to My Debts?
What Happens to your Debts After You File for Bankruptcy
At Seelinger Law, we believe that you should find out your options. We believe that bankruptcy is a way out, a way to a fresh financial start just as Congress intended, not the nasty “B” word that creditors would have you believe. Many people have misconceptions about bankruptcy. By calling Seelinger Law, you can meet with one of our bankruptcy attorneys to talk about your situation. We will assess your case without any strings attached.
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Frequently Asked Questions About Debt Resolution Following a Bankruptcy Filing
Can I File For Bankruptcy If I Do Not Have Any Credit Cards, Only Medical Bills?
Yes. Health care can be very costly. Hospital charges and doctor’s fees add up quickly, for procedures of all kinds, whether performed as outpatient services or more complicated procedures requiring a hospital stay. Debts from medical care are among the leading causes of personal bankruptcy filings. In bankruptcy, medical bills are treated the same way as credit cards and personal loans, and they are usually dischargeable. There are many people in this country who do not have health insurance, and it is easy to see how someone could get overwhelmed by medical bills from an unanticipated health issue.
Do I Have to Be in Default on My Loans Before I Can File for Bankruptcy?
No. It is common for individuals to be behind on their bill payments when they file for bankruptcy, but eligibility for filing for bankruptcy is not based on default on payments. Most people who file for bankruptcy have tried their best to make all of their required payments, often by cutting back on necessities, like food, and depriving themselves and their families of simple niceties, like an occasional meal out or toys for their kids. Bankruptcy relief enables those people to redirect their income to provide for their necessities and living a normal life.
Depending on individual circumstances, some people choose to use a Chapter 13 payment plan to pay back as much of their debts as they are able. Persons whose income is not sufficient to afford such a payment plan seek to eliminate the debts without payments through a Chapter 7 bankruptcy. If you have been paying back loans from friends or family, tell your attorney about those loans before you file for bankruptcy, because they must be treated just like all of your other creditors, with some special rules regarding recent payments made on those loans (they may be treated as “preferences,” which the bankruptcy trustee will closely examine).
Must I have a Certain Amount of Debt Before I File for Bankruptcy?
No.There is no minimum amount of debt that you have to owe before you can file for bankruptcy. Each individual’s circumstances are unique. What may seem like a small amount of debt to someone with steady income can be very burdensome debt to unemployed or low-income persons. A $5,000 debt owed by persons living on Social Security, in a single household income, or unemployed is a significant drain on their pocketbooks and quality of life.
If the creditor has filed suit and obtained a judgment, the result may be a levy by the Sheriff against needed assets, such as a car or furniture. Even if you have a steady income coming in, understand that with the compounding interest, that same $5,000 will look more like $15,000 in just a matter of years. It would make more sense to use that same money that you are paying on your unsecured debt and put it away toward retirement or improving your quality of life for you and your family.
What is the Difference Between Secured and Unsecured Debt?
Secured debt is debt that is backed by property. It is debt that you pledge your personal property (such as a vehicle) or real property (such as a house) as collateral for the debt. The two most common examples of secured debt would be your car and your home. If you are unable to complete the payments, the creditor can repossess the car or foreclose on the mortgage. In addition to your promise to make payments, the creditor has the ability to get paid through sale of the collateral.
Unsecured debt is simply based on your promise that you will pay the money back by a certain time. This is the way credit cards and some personal bank loans work. There is no pledged property to “secure” the debt. If you are unable to pay the creditor, the creditor can sue you based on your promise to pay, known as your “personal liability” to the creditor. Secured debt and unsecured debt are treated very differently in bankruptcy.
With Chapter 7 bankruptcy, you will generally be able to discharge or eliminate your unsecured debts, with some exceptions (for example, recent taxes, student loans, domestic support obligations). The bankruptcy discharge eliminates your personal liability for the debt, whether it is unsecured or secured. However, the creditor’s lien on your car or mortgage on your house is not eliminated.
Regarding your secured debt, you will have three options in Chapter 7. You will delineate your choice under a form called the Statement of Intention. Your Statement of Intention will be filed as part of your petition or within 30 days after the petition is filed. Your stated intention must be carried out within 45 days after the trustee meeting.
The first option is to surrender the property. For example if you are behind on a car that is truly just a lemon and you owe way more than the old car is worth, you may simply want to surrender the vehicle with the understanding that you will not be responsible for any deficiency or difference between what the bank can recover from selling the vehicle at auction and what is owed on the loan.
The second option is to redeem the collateral if it is personal property (i.e. the collateral is not real estate). To redeem the property means to pay the present value of the property in one lump payment instead of paying the full amount owed under the loan. This is typically a difficult option for people, as they do not have the money available right away to pay a lump sum.
The third option is to reaffirm the secured debt. Understand that by filing bankruptcy, you shield yourself from any personal liability separate from the collateral itself. In other words, after you file for bankruptcy, the creditor’s only recourse against secured debt is to take back the collateral. Creditors lose the right to sue you personally for the loan. By reaffirming the secured debt you are reaffirming your personal liability, and that debt is thereby excluded from the bankruptcy discharge. If you change your mind and want to rescind a reaffirmation agreement, this must be done within 60 days after the agreement is filed with the court, or before your case is closed, whichever comes first. Note that there are legal intricacies regarding your options and recommended treatment of secured debts.
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How are Payments Handled if I File a Chapter 13 Bankruptcy?
With Chapter 13 Bankruptcy, you propose a payment plan for a period of three to five years. When the plan has been successfully completed, a discharge is issued by the Bankruptcy Court, which eliminates your personal liability on most of your debts, unsecured or secured, with generally the same exceptions as in Chapter 7. However, during the plan term, the creditors named in the plan receive payments, and in some cases, unsecured creditors are partially or fully paid, so the discharge relates only to the balances remaining at the end of the plan term. Unsecured creditors receive payments if your income is high enough that the Trustee and the Court would find that you can afford to partially or fully repay the unsecured creditors, but they receive no payments when your income barely meets your living expenses.
As to secured debts, your options include surrendering the collateral as in Chapter 7, continuing to make payments(through the Trustee) in order to keep the collateral, or making an agreement with the secured creditor to change the payment terms. Your attorneys at Seelinger Law will fully explain your options and help you to decide what is the best option for you as to each secured debt.
Will Bankruptcy Take Care of My Student Loans?
Although student loans are listed in your petition, they are generally not discharged at the end of a Chapter 7 bankruptcy case. You are protected from collection activity for a few months, while the Chapter 7 case is open, but it is a very rare case when a student loan will be deemed dischargeable in bankruptcy. Your attorney will have to show that you cannot work at any job at the present time nor in the future, not simply the job that you were trained to do, further that you are not able to make the slightest payment, even several dollars toward your student loan each month. Although the bankruptcy laws make it difficult to discharge student loan, it is not impossible and your attorney can give you advice on other options for almost indefinite deferment or lowering your payment to something reasonable for your income.
If you file a Chapter 13 case, you remain protected from collection activity for the entire length of your plan term, which can be as long as five years. Even if your income does not enable you to make any payments to unsecured creditors in the Chapter 13 plan, the student loan creditors are not permitted to sue you or to garnish your wages during that five years. If your wages were garnished before the Chapter 13 was filed, the creditor is required to stop garnishing your wages after the Chapter 13 is filed.
Do I Have to Keep Paying Child Support and Alimony During my Bankruptcy Case?
The answer is an emphatic “Yes!” These obligations are not affected by bankruptcy discharge, and in fact your case may be dismissed if you fail to pay them during the course of your filing. However, you can still file for bankruptcy even if you are behind in your payments as long as you stay current during the bankruptcy. In fact, Chapter 13 bankruptcy can give you the time that you need to catch up on your domestic support obligations and deal with any arrearages. Chapter 13 bankruptcy could save you from losing your license, being dragged to court, or even being held in contempt and going to jail for missed payments.
Can I Keep My Kohl’s Card After a Bankruptcy Filing?
Many people have a favorite store in which they feel a certain loyalty toward. If you have a zero balance on a store credit card you do not need to list them as a creditor in your bankruptcy so that they will not have notice of your filing unless they do a random credit check. If you have a balance you must list them on the petition. The trustee will ask you at the meeting if you have listed all of your creditors and you must be able to answer honestly. However, if you choose to pay them back after the bankruptcy is final, that is your prerogative. Clients are generally advised not to pay back the store credit card as most clients will be able to open a new account with the store only a few short months later.
Contact Seelinger Law today for your free consultation, we can help, and provide you with guidance when you need it most
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Pittsburgh, PA 15212