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BANKRUPTCY Introduction Bankruptcy is a Federal Court proceeding created and governed by Title 11 of the United States Code. The law was designed to provide immediate relief from financial hardship and afford a debtor (whether it be a person or business) an opportunity at a fresh start. The Bankruptcy Code contains several different chapters which allow individuals, married couples, partnerships and corporation’s the opportunity to petition for relief in the bankruptcy court. The Attorneys at Busald Funk Zevely, P.S.C., have represented hundreds of people in consumer bankruptcies under Chapters 7 and 13 of the United States Bankruptcy Code. Our firm represents individuals seeking relief from financial difficulty through the use of consumer bankruptcies. QUESTIONS AND ANSWERS 1. What are the different types of bankruptcy? Under the Bankruptcy Code there are two Chapters under which most consumer debtors file for relief. Chapter 7 is commonly referred to as a liquidation or a straight bankruptcy. In a Chapter 7 case, the debtor is released from their legal responsibility to pay most debts. These debts are, in fact, liquidated and the debtor would not be required to pay any additional amount towards the remaining balance. This bankruptcy gives an individual a fresh start, in a situation where they are unable to pay their current debts. Chapter 13 is a bankruptcy proceeding for individuals who have the ability to pay some portion or all of their debt, if the schedule of payments were revised to allow them to pay in installments over a period of time. A debtor files a plan of repayment with the Bankruptcy Court to repay their creditors in full or in part. This plan must be approved by the Court and would require the debtor to make payments to the Bankruptcy Trustee, pursuant to the plan, for a period of time not to exceed five years. 2. Do I have to list all of my property and debts on my bankruptcy petition? The law requires that a debtor list all of their assets and all of their liabilities in their schedules. The debtor signs the bankruptcy petition declaring, under penalty of perjury, that the information contained therein is true and correct to the best of their knowledge and belief. The debtor is also required to submit monthly income and expense schedules. While a debtor must list all their liabilities in their schedules, they may have special reasons why they wish to pay a particular debt. For example, a debtor may want to continue to pay on their home and/or automobile and keep this property. This can be accomplished by the use of reaffirmation and redemption agreements. 3. What will happen to my property if I file bankruptcy? The Bankruptcy Code does not require that an individual be totally destitute. Each individual debtor is given exemptions which allow them to file bankruptcy and still maintain possession of various types of property. As long as the debtor’s equity in a specific piece of property does not exceed a statutorily set amount, the debtor will be permitted to retain the property. The amount of these exemptions vary from state to state. The debtor also has the option of entering into a reaffirmation or redemption agreement to maintain possession of property which a creditor has taken as collateral on their debt. A reaffirmation agreement is usually used for residential mortgages and automobile loans. It is an agreement to make monthly payments to the creditor to keep the property. Under a redemption agreement, the debtor would pay the creditor the fair market value of the property in a lump sum payment in order to maintain possession. 4. What if I have already been sued or my wages are currently being garnished? Under Federal Bankruptcy law, the filing of a bankruptcy petition stays all actions by a creditor against the debtor to collect their debt. Therefore, the bankruptcy proceeding allows the Debtor to stop judicial proceedings and collection actions on the part of a creditor. This means that a creditor can no longer take any action against a debtor without first obtaining the Court’s approval. 5. What effect will filing bankruptcy have on my credit? Obviously, filing bankruptcy does have an affect on a debtor’s credit rating. The notation of a bankruptcy can not remain on a debtor’s credit report for more than ten years. But it is not uncommon for a debtor to be in a position to obtain credit from financial institutions long before that time. 6. What happens to a person who has co-signed on a debt with me? A creditor can not continue any type of collection activity against a co-signor if the debtor files for relief under Chapter 13. This is not true if the debtor files a Chapter 7 bankruptcy. Under Chapter 7, the creditor is allowed to continue to collect their debt from a co-signor of the debtor. A co-signor of a debtor who files bankruptcy is left with no recourse against the debtor. The co-signor will still be liable for the debt, and in most cases, will have to solely pay the remaining balance. 7. What is a discharge? The reason people file bankruptcy is to get a "discharge." A discharge is a Federal Bankruptcy Court Order that releases a debtor from their legal obligation to pay most debts. Some debts can never be discharged. Debts which cannot be discharged, include most taxes, (income taxes can be discharged after a period of years), child support, alimony/maintenance, most student loans, criminal court fines and restitution and personal injury caused by driving under the influence of alcohol or drugs. Additionally, the discharge only applies to debts that arose prior to the date of the filing of your petition. A debtor can only receive a Chapter 7 discharge once every six years. 8. What fees and expenses do I have to pay? Under the Bankruptcy Rules, an individual must pay a fee to file a petition for relief in the Bankruptcy Court. The filing fee is currently $200.00 for a Chapter 7 case and $185.00 for a Chapter 13. However, if unable to pay this amount in a lump sum, the law does allow the Bankruptcy Judge to grant leave for a debtor to pay the filing fee in installments. The expense of hiring a lawyer is also the responsibility of the debtor. Any individual considering bankruptcy can receive a free initial consultation with the firm of Busald Funk Zevely, P.S.C. At Busald Funk Zevely, P.S.C. we are eager to meet with you at no cost to discuss your legal rights. THIS ARTICLE IS INTENDED TO DISCUSS GENERAL LEGAL PRINCIPLES. IT IS NOT INTENDED TO BE A SUBSTITUTE FOR SPECIFIC LEGAL ADVISE FROM AN EXPERIENCED ATTORNEY AS TO YOUR PARTICULAR SITUATION AND NEEDS. Busald,
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