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What happens to my house and car? One of the biggest worries you face in considering filing for bankruptcy is the possible loss of a home and car. If you are behind on mortgage or car payments, you will almost certainly lose your house and car if you file a Chapter 7. In a Chapter 13, you will not lose your house if you immediately resume regular payments and repay you missed mortgage payments. In a Chapter 13, you can pay off your car by paying to your creditor the value of the vehicle not what you owe. If you are current on your mortgage or vehicle payments, you will not lose your house and car if you file for Chapter 13 as long as you continue to make your payments. In Chapter 7, whether or not you will lose your house and car depends on the amount of equity you have in the property and the amount of exemption that you are entitled to. If the total amount of debt against your house or car is less than the market value, you may lose the property unless an exemption entitles you to all or most of the equity. How will lawsuits/garnishments be affected? Filing of the bankruptcy petition results in an automatic court order called an “automatic stay.” This Bankruptcy Court Order prevents any lawsuits from being filed or judgments entered against you. It protects you from garnishment, seizure of assets, harassment, phone calls, threats and collection action. If you file bankruptcy and a lawsuit against you is pending, it can go no further. If a judgment has been taken, its enforcement can go no further. Even potential debts or claims can be discharged in a bankruptcy. Foreclosure/sheriff sales? With Indiana leading the nation in the number of foreclosures and over 700 a month recently in Marion county, foreclosures are a significant part of our workload. Foreclosure of a house is the legal process which enforces a mortgage and results in the public sale of your house. You are then liable for any deficiency. Typically, a lender does not start the foreclosure process until you are at least 90 days late. When you miss a mortgage payment, the bank typically will call at 30 days and send a letter at 60 days. After the foreclosure is filed, generally within 6 months the sheriff sale will occur. Normally in order to save your house, you need to file a Chapter 13 before the sheriff sale. Bankruptcy will stop the foreclosure process. Many people are forced to file a Chapter 13 to save their homes from foreclosure. If you have the ability to maintain the regular mortgage payments plus an additional payment to get caught up over time, you can save your house. If you cannot afford your house, a bankruptcy can wipe out the debt and buy you some more time to live in your home rent free. In some instances, it is even possible to strip off second and third mortgages off your house. I am behind on my vehicle? Under Indiana law, if you are behind on your vehicle then your creditor can repossess it without even notifying you. After the repossession, the vehicle is old at auction and you are liable for any deficiency even if you voluntarily gave back the vehicle. In a Chapter 7, you will usually lose your vehicle. In a Chapter 13, you can “cram down” your vehicle. This means that you can keep the vehicle and pay to your creditor the fair market value of the car not how much you owe on the vehicle. For example if you owe $15,000 but your vehicle is only worth $7000 then in a Chapter 7 you need only pay the $7000. Also, it is even possible to lower the interest rate that you are paying on your vehicle. How do I know that I need a fresh start? You need a fresh start if you are falling behind on mortgage or rent payments, you are only making minimum monthly payments, you have little savings, you are continually denied credit, or you are using credit in place of cash. Remember when you fail behind on payments, your creditors will take your house, you car, and up to 25% net of your paycheck by garnishment. Will filing stop harassing phone calls? When you file either kind of bankruptcy, something called an “automatic stay” goes into effect. This stops all actions to collect debts including phone calls. In fact, upon hiring us, you can start referring creditors to us which often stops most creditor phone calls. Has the bankruptcy laws changed? No. Despite some recent television advertisements, the bankruptcy law has not changed. In fact, no one knows if the laws will ever change. However, it is true that Congress has attempted to change the laws. The proposed law change would basically eliminate the Chapter 7 bankruptcy option. Can I keep my possessions? Yes. The law was not designed to take your possessions but rather to give you a fresh financial start. The law allows you to keep certain property to aid you with your fresh start. If you are over your exemptions then you can pay an equivalent amount back to your creditors to keep those possessions. I am married does my spouse have to file? No. Just because youare married, you both do not need to file. Husband and Wife can file together or separate. Only your property is affected not your spouse’s. Further, your spouse is not affected as the filing should only appear on your credit report and not your spouse’s. Can I get my license back after an accident? Upon the filing of the bankruptcy, an “automatic stay” goes into effect. This means that creditors cannot take actions against you to collect debt including keeping your license. If your license is suspended because you owe money then upon the bankruptcy filing you can get your license back. However, you will be responsible for the reinstatement fee. Property damage is dischargeable in a bankruptcy. Personal injury is also dischargeable unless it results from an accident involving drugs or alcohol. Can employers discriminate? It is illegal for an existing employer to discriminate against an employee that files for bankruptcy. This includes both private and governmental employees. In addition, it is illegal for local, state, or federal governmental agencies to discriminate against a person as to granting licenses, permits, and similar grants because that person has filed. Can student loans be included? Student loans are debts that are not generally dischargeable in bankruptcy. In a chapter 7, the answer is no. Nevertheless, it is possible to include student loans in a Chapter 13 repayment plan that may provide some benefit. Can I get future student loans? Regarding future student loans: A federal law prohibits the Department of Education or banks from denying you a student loan because of a previous bankruptcy. So you should not have problems getting a student loan. Which type of bankruptcy is better for my credit? A Chapter 7 stays on your credit record for 10 years and a Chapter 13 stays on your credit report for 7 years. However, a Chapter 13 bankruptcy is a form of bankruptcy in which you agree to pay back your debts in smaller, regular payments. Therefore, this form of bankruptcy often results on the repayment of debts. Many lenders view Chapter 13 payment plans in a more favorable light than straight bankruptcy because there is a record of payments made over 3 to 5 years which proves that the debtor was able and willing to pay debts back to the best of your ability. We have many clients that have filed Chapter 13 and are able to qualify for home loans after showing a good chapter 13 payment record. In order to rebuild credit, we would suggest that all payments be made timely, that rent, mortgages and utilities be paid on time, that insurance is never allowed to lapse, and that you work a steady job for a long time in order to show stability and reliability. Often filing a bankruptcy is actually the best way to get your debts under control, get them behind you, and start rebuilding your credit. Can I pay back certain debts after my bankruptcy discharge? Yes. The bankruptcy Code does not prevent you from voluntarily paying back debts that you feel compelled to pay even though the debt was legally discharged in the bankruptcy.
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