TOP TEN QUESTIONS ASKED BY CLIENTS CONSIDERING BANKRUPTCY

1) “What’s the difference between Chapter 7 and Chapter 13.”
Most people file Chapter 7. It is the cheapest, quickest, and easiest bankruptcy. It is for people who do not have a lot of property or income.
If you are behind on your payments on a house or car, and want to keep the house or car, you can file Chapter 13 and do so if you can resume your payments, and pay the arrearage over 3 to 5 years. If you make too much money, or have too much property, Chapter 13 may be required.

2) “I have a vacant lot,, can I give it to my son, so it’s no longer mine when I file, to keep it from my creditors?”
No, it won’t work, unless you wait 3-4 years before you file. I tell my clients that they can pretty well conclude that any trick they can come up with to fraudulently avoid surrendering property has been tried, and a court has ruled against it.

3) “When I got my tax refund, I paid Mom back for that loan she gave me, will that create a problem?”
Yes, you cannot choose to pay one unsecured creditor (no collateral) and not pay others. Mr. Mastercard has just as much of a right – maybe more of a right – to that tax refund as does Mom. If you file shortly after paying Mom off, she may be required to return that payment to the court.

4) “Do I have to give up my house and car?”
No. Not if you have enough money to pay for them. In a Chapter 7, if you have a car or house loan, and are current on the payments, the loans are unaffected by the bankruptcy. If you can resume normal payments, and repay the arrearage in 5 years, you can keep them in a Chapter 13 even if you’re behind on payments when you file bankruptcy. If the car and house are both yours and paid off in full, and they are of low enough value, you can keep them in a Chapter 7. If too valuable to keep in a Chapter 7, you may be able to keep them in a Chapter 13 – by paying your creditors the value of that property (after deducting exemptions).

5) “Will I have to pay taxes on the amounts forgiven in the bankruptcy?”
No. But if you negotiate the payment of, for instance credit cards at less than their full amounts to stop a creditor from collecting the whole amount, the part you don’t pay is taxable – but not in a bankruptcy!

6) “Can I get rid of my educational loans in a bankruptcy?”
If your loans are federally guaranteed, they are not forgiven in a bankruptcy.

7) “If I file, when will my creditors stop bothering me?”
The law requires creditors to stop contacting you about debts as soon as they become aware you have filed a bankruptcy. Sometimes this may take a few weeks, but if you are contacted by a creditor after you file bankruptcy, give them your case number, and if they call again, call your lawyer. The bankruptcy court is not hesitant to fine such creditors.

8) “Do I have to go to court?”
Probably not. I estimate that less than 1 in 50 cases actually make it to court, and in most of those it is usually only the lawyer that has to appear in court. If you are honest and thorough about the information you give your lawyer, you should not have to go to court.

9) “What’s this Meeting of the Creditors all about?”
The meeting of creditors is not held in a court. There is no judge, but the judge’s assistant who is called a trustee has the responsibility to meet with you and your lawyer to get answers to any questions that might arise from your filed bankruptcy papers. Creditors rarely attend these meetings (again maybe 1 in 50 cases will include a creditor). This meeting of the creditors is also called a “341 Hearing.” They usually last about ten minutes.

10) “What’s an exemption?”
Most state governments and the federal government have laws called exemptions that permit you to keep certain property without having to give it up or make extra payments in a bankruptcy. In Illinois a married couple has $30,000 to protect their home, $4,800 to protect cars, and $8,000 to protect personal belongings and money. The part of a car or house that you actually own, that needs to be protected by an exemption, is only that part that is left after you subtract what you owe creditors on the house or car loan.

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