What if I have too much debt? Or, too little?
If your income is higher that the median income for a family of your size in your state, you may think that you are not be eligible to file a Chapter 7 bankruptcy, but this is not necessarily true — a more detailed analysis of the type of income that you have, when it is received, and any possible future changes, may reveal that you really are eligible, or will become eligibile if you wait a few months to file. There is no specific debt limitation for Chapter 7 debtors. Chapter 13 debtors can have up to $307,675 in unsecured debt (like credit cards, signature loans, etc.) and $922,975 in secured debt. That is a lot more debt than most ordinary people will ever accumulate, but it is possible.
Some people who have come to us for help, have what many might consider “not enough” debt to make a bankruptcy worthwhile. But, if you have very little income and few resources to help you pay off the debt, or, creditors are hounding you without mercy, bankruptcy, even for small debt can make sense.
What is a means test?
One of the first steps in determining which chapter of bankruptcy you should file, the “means test” compares your gross income (before taxes and deductions) to the median income for a family of your size in your state. If your gross income is greater than the median, you may be required to file under Chapter 13 — but not necessarily!
The means test is a complicated “tool, ” and its use is not always well-defined by the law. Correctly making all of the necessary calculations is a matter of knowing the law, how courts have interpreted the law, and how the law is treated informally in the local jurisdiction.
You cannot fail the means test, but you may not always get the result that you want. Consulting with an experienced bankruptcy attorney is the best way to handle the means test.
Do I have to see a debt counselor?
THE BAD NEWS: Since October 17, 2005, Bankruptcy law requires that you complete a court-approved credit counseling session before filing your bankruptcy case, and a court-approved financial management session after filing.
THE GOOD NEWS: You don’t have to go to a class or meet in person with a counselor to do these sessions, you can do them online or by telephone using a toll-free number. Each session takes a little over an hour.
You can use any agency that you want to use to do this, but they must be approved by the United States Trustee’s office to give the counseling for the bankruptcy filing district in which you live. Sound complicated? We try to make it as easy for you as possible by providing you with information from a counseling agency that we trust, and that our clients.
Will my case be listed in the newspaper?
Bankruptcy is a public record, but the decision whether to publish the names of people filing bankruptcy is up to individual publishers. Some cities and counties have specialty newspapers that list all court cases, state and federal, including bankruptcy filings. Some local papers, list bankruptcies, too. We haven’t heard of any papers in mid-Missouri that publish bankruptcy information.
Will I lose my house? My car?
If your house or car is collateral (security) for a loan, you can keep the property, but you must continue to repay the loan. Bankruptcy stops a scheduled foreclosure or repossession, but only temporarily. If you cannot make up the payments right away, your lender will ask for a court order allowing them to go ahead and foreclose or repossess. Your attorney should be able to show you how to handle past due payments as part of your bankruptcy planning, and counsel you as to which type of bankruptcy would be the best way to reorganize your debt and keep your property.
Do I have to give up all of my credit cards?
You may want to keep a major credit card for emergencies, or you may want to pay a particular debt because you feel an obligation to a “friendly” lender. The court frowns on this because the point of bankruptcy is to give you a fresh start, free of old debts. You will be better able to save money and balance your household budget if you are not making debt payments. If want to hang on to old debt, keep this in mind:
- Using credit cards was part of the problem that got you into bankruptcy
- You can use your bank debit card (MasterCard or Visa check card) like a credit card
- Keeping your lender’s “goodwill” may not be worth the amount of money you are paying back
Even if you pay your lender in full, banking practices require that future credit will be based on your credit score – not the lenders good feelings toward you.
Will the bank freeze my accounts?
Not unless you owe money to the bank. But, BEWARE – if you do owe them money, or owe on a credit card issued by the bank, the bank has a right to take the money out of your account if you don’t pay. You should remove all of your accounts and assets (including the contents of your safe deposit box) from the bank BEFORE your bankruptcy case is filed. Talk to your lawyer if you bank at a credit union.
Should I transfer my property to someone else?
No. Not until you talk to a bankruptcy lawyer. If you transfer property in order to keep it from being listed as an asset in bankruptcy, you could end up losing the property, anyway. Plus, if the court finds that you were trying to commit fraud, you case could be dismissed, and you could be investigated by the FBI. If prosecuted and found guilty of bankruptcy fraud, you could be sentenced to federal prison, where you will serve 100% of your sentence.
Who will know if I lie?
First of all, YOU will know. Then, even if you can live with your guilty conscience, think of all of your creditors — including your relatives and friends. All of your creditors will get notice of your bankruptcy, and all of them will be familiar with your property. Even smart people get caught lying on their bankruptcy forms, because they usually don’t consider the one creditor who will be mad enough to report unlisted or transferred property. Ex-spouses, former business partners, landlords, banks, nosy neighbors and angry relatives have all been known to report what they think might be fraud
What will bankruptcy do to my credit rating?
Bankruptcy will damage your credit rating, and it will stay on your credit report for 10 years. However, the bankruptcy will not keep you from getting credit for the full ten years. As you rebuild your credit, the bankruptcy will become less important, and have less effect on your credit rating. Lenders will look at how you have handled credit after the bankruptcy, and make their credit decisions according to your more recent credit history.
How can I get a copy of my credit report?
Each credit bureau must give you one free copy of your credit report per year. If you are denied credit, you can get an additional copy of the report, but only from the bureau that the lender used to get your credit information. You can go to www.AnnualCreditReport.com. This is a web site set up by the three nationwide credit reporting companies.
DON’T BE FOOLED BY SIMILAR SITES that promise a free credit report, but make you buy something else to get it. www.AnnualCreditReport.com will try to sell you other services (like your credit score), but you do NOT have to buy or pay anything to get your reports – THEY ARE FREE! The website can be a problem if you have a slow computer, but the reports are complete and they will have instructions on how to dispute incorrect listings. You can also get the reports by writing to each credit bureau.
Why don’t more people file for bankruptcy?
First, not everybody is entitled to file for bankruptcy. It is only for people who cannot pay, or are having a hard time keeping up with their debt payments. Second, think of how hard you are struggling to pay your debts — most people are like you — they want to pay! The real question is why doesn’t everybody who SHOULD file bankruptcy do it? People think it is shameful, or deceitful to not pay. Or they have been told lies about bankruptcy. Smart people know when they need help, and they get advice from a bankruptcy attorney, not a collection agent, their neighbor, or a supermarket tabloid!