What should I know about bankruptcy?

Contents

• What is bankruptcy?
• What are my rights in bankruptcy?
• What are my responsibilities?

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What is bankruptcy?

Bankruptcy allows debtors who are unable to pay their debts as they come due to hold off their creditors. They can either write off or repay their debts under court supervision.

 

There are numerous kinds of bankruptcy petitions, but the most common for individuals are: 

• Chapter 7 is known as liquidation bankruptcy. In a Chapter 7, the debtor declares that he or she cannot pay his or her debts as they come due. If this declaration is accepted by the court, most unsecured debts such as credit cards are canceled. Also, debtors must surrender some unsecured assets to the court, which are sold and the sale proceeds used to pay creditors. You can only file a Chapter 7 once every eight years. Certain debts such as taxes and student loans can only be cancelled in very limited circumstances.

 

• Chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. In Chapter 13, you can save a home from foreclosure, even if you are behind on your mortgage, or a car from repossession. Be aware that it is almost impossible to successfully file a Chapter 13 without the help of a bankruptcy attorney. It also allows the debtor to cancel certain unpaid debts that can't be canceled under Chapter 7.

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What are my rights in bankruptcy?

You have the right to file for bankruptcy if:

• You do not have enough money to pay your debts. In Georgia, you qualify for Chapter 7 bankruptcy if you earn below the state median income or if you can pass the “means test.” The means test will determine whether your debts exceed your income. If you do not pass the means test, you may still be able to file for Chapter 13.

 

• Enough time has passed since any previous bankruptcy. The waiting period between bankruptcy filings depends on the type of bankruptcy.

  • If you had a Chapter 7 discharge in the past, you must wait eight years until you file another Chapter 7.

  • If you had a Chapter 13 discharge in the past, you must wait two years until you file another Chapter 13.

  • If you had a Chapter 7 discharge and now want to file Chapter 13, you must wait four years.

  • If you had a Chapter 13 discharge and now want to file Chapter 7, you must wait six years between filing dates.

 

Even if enough time has passed, you may still not be able to file. The court may ban you from filing because a previous bankruptcy case was dismissed. 

 

What can I expect from bankruptcy?

When you file for bankruptcy, certain things will happen, including:

• Automatic stay. As soon as you file for bankruptcy, the court puts an order called an automatic stay in place. The automatic stay puts a pause on most actions against you while the court decides your bankruptcy case. The automatic stay will permanently or temporarily stop:

  • Attempts to collect debts, including creditor calls. Creditors CAN still collect child support payments;

  • Wage garnishments;

  • Civil lawsuits;

  • Evictions if your landlord doesn’t already have an eviction order;

  • Repossession;

  • Foreclosure.

 

• Eliminate most debt. Bankruptcy will discharge most unsecured debt. In chapter 7, these debts will be wiped out, while in Chapter 13, you will repay a portion of your debt over a period of three to five years. Examples of unsecured debt include:

  • Credit card debt,

  • Medical bills,

  • Overdue utility payments, 

  • Personal loans,

  • Gym contracts.

 

Bankruptcy will also discharge secured debt, but you will not be able to keep the item you used to secure the loan. Examples of secured debt includes houses, cars, electronics or furniture that you must return if you quit making payments.

 

What can I NOT expect from bankruptcy?

There are some debts that cannot be eliminated in bankruptcy. These include:

• Child support and alimony;

• Student loans, except in very limited circumstances;

  • Most times student loans will not be dischargeable. Student loans are difficult, but not impossible, to discharge in bankruptcy. To do so, you must show that payment of the debt “will impose an undue hardship on you and your dependents.” If you can successfully prove undue hardship, your student loan will be completely canceled.

• Tax debts, except in very limited circumstances;

  • Tax debt can be discharged through bankruptcy, but only if you meet the following criteria:

    • It’s income tax debt.

    • You filed a legitimate tax return in the two years prior to your bankruptcy filing.

    • The debt is at least 3 years old.

    • The tax debt was assessed at least 240 days before you file for bankruptcy.

    • You didn’t knowingly and willfully commit tax evasion or fraud.

  • If you meet those five criteria, then you can discharge tax debt through Chapter 7 bankruptcy. The discharge will also include penalties and interest generated by that debt.

• Debts from a DUI case where you caused an injury or death;

• Fines and penalties from a criminal case (including traffic tickets);

• Debt that you got through fraud (like where you lied about your income on a credit card application)

Bankruptcy does not discharge liens. If there is a lien on your property, the creditor can enforce the lien and take back the property even after bankruptcy. 

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What are my responsibilities?

Bankruptcy is a complicated legal process. You are responsible for providing a lot of financial information to the bankruptcy court. You are responsible for understanding all of the bankruptcy rules and procedures. You are strongly encouraged to consult a bankruptcy attorney. The court will reject your bankruptcy petition if you do not follow the rules, whether you have an attorney or not. There are several specific steps you must take in a bankruptcy case, including:

• Compiling all of your financial records;

• Receiving credit counseling within 180 days of filing your bankruptcy case;

• Filing a bankruptcy petition, following rules and procedures of the court;

• Attend creditor meeting with your court trustee and creditors;

• Follow the court’s ruling and discharge plan.

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Contents

• How can I decide if filing for bankruptcy is right fo me?

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How can I decide if filing for bankruptcy is right for me? 

Bankruptcy is a tool you can use to get a fresh start when you are unable to pay your debts. However, there are times when bankruptcy is not the best option. 

 

When do I NOT need bankruptcy?

Even if you have a lot of debt, you do not need bankruptcy if you have no assets or income that a creditor can take. This is called being “judgment proof.” You do not need bankruptcy if you are:

• You do not have a job.

• You do not have anything of value for creditors to take.

• Your income is protected from creditors. Examples of income that creditors cannot take (garnish) are:

  • Social Security,

  • Workers Compensation,

  • Unemployment Compensation,

  • TANF,

  • SSI Benefits,

  • Child Support.

 

It may be possible to stop creditor harassment by sending a letter to your creditors explaining that your only source of income is "exempt" from collection.

What are bankruptcy alternatives?

Before you file for bankruptcy, you might want to explore other alternatives first. This is especially true if you have valuable items that you bought with credit that you want or need to keep, or if you want to get credit in the near future. 

 

Bankruptcy stays on your credit record for ten years. However, if you are facing a foreclosure or already have poor credit, bankruptcy may not make a significant difference on your credit score, and can give you a fresh start and allow you to start rebuilding your credit. Some people report that within several years after completing a bankruptcy, they are able to obtain credit at a reasonable rate again.

 

Things you can do to avoid bankruptcy include:

• Negotiate with your creditors. Your creditors may be willing to settle your debts for less than you owe or work out a payment plan, particularly if they know you are considering filing for bankruptcy.

• Talk to a credit counseling agency. You have to do credit or debt counseling before filing for bankruptcy, but in some cases, these counselors can help repay your debt and avoid bankruptcy. 

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