Frequently Asked Questions
1. Q: What exactly is bankruptcy?
A: Bankruptcy is a legal proceeding to allow a person who cannot pay his bills a “fresh start” in life. Depending on the type of debt you have, and the type of Bankruptcy you file for, many, if not most or all of your debts, can be eliminated (“discharged”) by this process. The legal right to file for Bankruptcy is provided by Federal law, and the legal process is administered by the Federal Bankruptcy Court. There are generally two types of Bankruptcy applicable to most consumers — Chapter 7 (a liquidation) or Chapter 13 (a repayment plan).
2. Q: Can my creditors still try to collect money from me after I file for Bankruptcy?
A: No. Once you file for Bankruptcy, your creditors must immediately stop trying to collect money from you. This means they cannot legally call or write to you to collect money, start or continue a lawsuit against you, start or continue to garnish (take a portion of) your paycheck, start or continue to “freeze” your bank account, or engage in any other activities to try and collect money from you. This includes repossessing your car or foreclosing on your home. This immediate freeze on all collection activities is referred to as the "automatic stay".
3. Q: Can I file for Bankruptcy even though I am not a U.S. citizen or green card holder?
A: Yes. You are eligible to file for Bankruptcy, even if you are illegally in the United States. You do not need to be a U.S. citizen or green card holder, or have any other legal status in this country to be allowed to file for Bankruptcy and eliminate your debts.
4. Q: Is it possible to get the Bankruptcy Court filing fee waived?
A: Yes, in certain circumstances. If your income is below a certain level (150% of the poverty line for your household size), it is possible to get the Bankruptcy Court filing fee eliminated. It is also possible to get permission from the Court, in other situations, to be allowed to pay the court filing fee in installment payments. The Law Office of Henry Ahrens can determine if you qualify for these benefits and apply for these benefits for you. The current Bankruptcy Court filing fee for a Chapter 7 case is $306, and $281 for a Chapter 13 case (for both individual and joint cases).
7. Q: If I file for Bankruptcy, will I ever get credit again, or get a mortgage to buy a house later on?
A: In all likelihood, you will get credit again, and generally within a very short period of time after filing for Bankruptcy. Although this may seem counter-intuitive, you will be in a better position to acquire credit after you file for Bankruptcy then you are now. The reason for this is because the credit card companies know that: (a) you now cannot file for Chapter 7 Bankruptcy again for at least eight years; and (b) most, if not all, of your prior debts will be eliminated by your Bankruptcy. This makes you a much more attractive candidate to receive credit than someone who has large amounts of current outstanding debt, and who may go bankrupt shortly after receiving the new credit. Some credit card companies actively pursue people who have just filed for Bankruptcy for new credit.
Once you receive new credit and are able to pay off your new credit card bills as they become due (which you are much more likely to be able to do because most, if not all, of your pre-Bankruptcy debt will be discharged), you will now be establishing a positive credit history. Assuming you continue to build a positive credit history post-Bankruptcy, you will be much more likely to obtain a mortgage in the future. Of course, it will be up to you to build that positive credit history after your Bankruptcy, but the point is
this - filing for Bankruptcy will put you in a position where you can begin to do so. If you continue to languish in your current debt, your chances of getting new credit and/or obtaining a mortgage are probably not good.
5. Q: What are the “common signs” of someone who should consider filing for Bankruptcy?
A: Generally speaking, you should consider Bankruptcy, if: (a) you are afraid to answer your telephone because of all the collection calls, or hate going through your mail; (b) all or most of your credit cards are already at their maximum spending amounts; (c) you can only afford to pay the minimum payments listed each month on your credit card statements; (d) you cannot make the required monthly payment arranged for you by a credit counseling service; (e) you have been rejected for a debt consolidation loan; (f) you are taking money out of your retirement funds to pay your credit cards; or (g) you are arguing with relatives over your finances or are preoccupied with your debt.
If some or all of these scenarios sound all too familiar, you should explore the option of filing for Bankruptcy. Just remember, you are not alone. Former Texas Governor John Connolly had filed for Bankruptcy protection, not to mention many major U.S. companies. Thomas Jefferson, for one, was consumed by his overwhelming debt. However, you have an advantage that was not then available to Jefferson - the Federal Bankruptcy laws.
8. Will my credit (FICO) score go down if I file for Bankruptcy?
A: Generally, your credit score will improve within one year after you file for Bankruptcy, though this is also counter-intuitive. When someone files for Bankruptcy, two things happen to their credit score: (1) the fact that you filed for Bankruptcy will remain on your credit history for up to 10 years, and this operates to pull your credit score down; and (2) your debt-to-income ratio dramatically improves, which will operate to raise your credit score. The reason that the ratio improves is because, by virtue of the Bankruptcy, a person has eliminated most or all of their debt. A person's credit score is partially determined by their debt-to-income ratio. Both of these factors pull your credit score in opposite directions (one up, the other down), and the overall effect is usually a net positive gain. See our "Do you know who you owe?" page for information on how we can obtain a comprehensive liability report for you, which will give you a projection of what your credit score will be one year from now, under the presumption that you file for a Chapter 7 Bankruptcy now.
10. Q: Am I allowed to have any property at the time that I file for Bankruptcy?
A: Yes. You do not have to be down to your “bottom dollar” to file for Bankruptcy. You can wait that long, if you wish, but that would be foolish, and would cause you and your family to suffer needlessly. The Bankruptcy laws are there for your protection, and you do not need to wait until you are penniless to take advantage of them. See the answer to FAQ #5, above, regarding when someone should consider Bankruptcy. See also the “Info about Chapter 7” page for an explanation of what “exempt” assets are.
13. Q: Can I transfer some/all of my assets to a friend/relative for little/no value in return before I file for Bankruptcy?
A: No. This would constitute a fraudulent conveyance — do not do this, as you would create tremendous legal problems for yourself. Just as you are required to list all of your creditors, you are also required in a Bankruptcy filing to list all of your assets. We can help you legally arrange your assets to take full advantage of your allowable exemptions — and can often legally achieve the same results that you are trying to accomplish through a fraudulent conveyance. So don’t do something foolish that you will live to regret.
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11. Q: Will I lose my job if I file for Bankruptcy?
A: No. It is a violation of Federal law for your employer to fire you or otherwise discriminate against you because you filed for Bankruptcy. As a practical matter, unless your employer is also one of your creditors, it is unlikely they would ever find out that you filed for Bankruptcy.
14. Q: Will I need to appear in Court if I file for Bankruptcy?
A: Yes. If you file for a Chapter 7 or 13, you will need appear in Court for what is called the "Meeting of the Creditors" or "Section 341 Meeting". Your creditors have the right to appear at this meeting and ask you questions under oath. The meeting will be conducted by the Trustee, who is an attorney in private practice who administers your case on behalf of the Court.
The Trustee will also ask you questions under oath which generally center on whether your bankruptcy forms were properly filled out, whether you disclosed all relevant information regarding your financial circumstances, and also on whether you have any "non-exempt" assets (See "Information on Chapter 7" for an explanation of what "exempt" and "non-exempt" assets are). If you file for a Chapter 13, you will also need to appear for a "Confirmation Hearing" before a Bankruptcy Court Judge, to determine if your Chapter 13 Plan will be approved (or "confirmed") by the Court.
These hearings are tape recorded, and are under penalty of perjury, so it is important that you are properly prepared in advance for these hearings. If you retain The Law Office of Henry Ahrens to represent you, Mr. Ahrens will personally appear with you at these hearings to protect your rights. Mr. Ahrens will also personally prepare you in advance for these hearings, so that you will know what to expect and will feel comfortable with the process.
6. Q: I filed for Bankruptcy before. Can I file again?
A: Generally, yes. If you previously received a discharge (elimination of your debts) in a Chapter 7 Bankruptcy, you must wait at least eight (8) years from the date of the filing of this prior Chapter 7 Bankruptcy case before obtaining a discharge in a new Chapter 7 Bankruptcy case. If you previously received a discharge in a Chapter 13 Bankruptcy, you must wait at least six (6) years from the filing of this prior Chapter 13 case before obtaining a discharge in a new Chapter 7 Bankruptcy case. You can file for a Chapter 13 Bankruptcy within six (6) years of a prior Chapter 7 discharge. Also, in both Chapter 7 & 13 Bankruptcies, you cannot file for Bankruptcy if, within six (6) months prior to the current filing, you had filed for Bankruptcy and either: (a) had the case dismissed by the Court for your failure to appear, or (b) you voluntarily withdrew the prior Bankruptcy filing.
9. Q: Will I lose my home, car and all my property if I file for Bankruptcy?
A: No. You are allowed to keep your “exempt” assets in a Chapter 7 Bankruptcy. It is very rare for someone to lose assets in a Chapter 7. See the “Info about Chapter 7” page for a discussion of what is exempt property for California residents. In a Chapter 13 Bankruptcy, you always keep all your assets. See the “Info about Chapter 13” page for an explanation of Chapter 13. Part of the service that The Law Office of Henry Ahrens provides is to help you arrange your assets in such a way, before you file for Bankruptcy, so that you can take full advantage of your allowed exemptions. This is called “exemption planning”, and is similar in concept to tax planning. We will also help you pick the right type of Bankruptcy, given your circumstances, so that you can keep as much of your property as possible. We will help you keep as much of your assets as the law allows.
12. Q: Do I have to list all of my creditors in my Bankruptcy?
A: Yes. You are not allowed to arbitrarily pick which of your creditors you want to list and which ones you don’t in your Bankruptcy; you must list them all. At any rate, you can always voluntarily repay which ever of your creditors you wish after the Bankruptcy proceeding is over. Also, keep in mind that debts owed which are not listed in your Bankruptcy may not be legally discharged (eliminated) in your Bankruptcy. Thus, it is also in your best interests to list all of your creditors.
15. Q: Isn’t filing for Bankruptcy “morally” wrong?
A: The answer to this question is really very subjective and depends on the personal beliefs of an individual. I can tell you this — the bankruptcy laws have existed in this country for well over the last 100 years, and the prevailing theme of these laws is that it is in this country’s best interests to allow people to have a “fresh start” in life, so that they can try again, and hopefully contribute to society (i.e., make money and pay taxes) in the future.
These laws are there to protect you and because a decision was made a long time ago that it benefits society, as a whole, to have them. This country wants to encourage people to not give up and to start over. After all, many very successful entrepreneurs did not succeed until after several (or many) prior failed attempts.
If it bothers you that you are not repaying your creditors in full, you can always, at some point in the future, when your bankruptcy proceeding is over, voluntarily repay your creditors. Believe me, they will be happy to take your money then. This way, you could repay them on your terms, when it is convenient for you.