The Bankruptcy laws are broken down into chapters. For instance, there is Chapter 7 (sometimes called “total bankruptcy”, but that term is misleading), Chapter 13 (sometimes called “bill consolidation” or “wage earner plan”), Chapter 12 (bankruptcy for the family farmer), and Chapter 11 (bankruptcy for huge corporations).
The 2 chapters available to most people in need of help are Chapter 7 and Chapter 13. Let’s talk about Chapter 7. Filing bankruptcy under Chapter 7 is truly amazing.
(1) Get rid of certain types of debt permanently.
This is huge. There is nothing else like it in the world. Chapter 7 gives you the right to get rid of most common types of unsecured debts, like credit card debts, medical bills, bank loans, finance company loans, and credit union loans. It can also get rid of unsecured debts left over from a divorce, failed businesses, personal guarantees, trade creditors, and certain income taxes over 3 years old and the list goes on. We have clients who routinely get rid of, and we mean permanently, with no obligation to ever pay it back, between $5,000 and $5,000,000 worth of unsecured debt. Every day of the year, we have clients who get rid of $20,000, $30,000, $40,000 or more in unsecured debts.
Don’t forget the interest. When you get rid of debt, you also get rid of the obligation to pay interest on that debt. This is a “huge plus". You know from your own experience how much of your payments go into just paying interest and more interest. Not only do you get rid of the debt...you also get rid of all that interest. So, is that amazing or what?
More importantly, this can translate into hundreds of dollars per month in lower payments. How can this be? This seems too good to be true.
You know, you’re right. It does seem too good to be true. In life, we learn that if something seems too good to be true that it generally is: except for Bankruptcy. Bankruptcy is the real deal. As I always say, “Other ads promise but, only Bankruptcy delivers.” If I could get people to keep an open mind about bankruptcy, my phone would ring off-the-hook with people wanting to know more.
Why are the Bankruptcy laws this powerful? The answer is that long ago Congress decided that it was important to give good, honest, hard-working people a way if needed to get free from their burden of debt. Why? They want to prevent good, honest, hard-working people from becoming discouraged and losing hope. Congress wants to prevent those same people from becoming unproductive members of society because of crippling amounts of debt. Saving good people is good for society. To achieve this goal, to make it really work, Congress had to give the bankruptcy laws some real teeth to make the Bankruptcy laws powerful enough to make a difference.
That is exactly what Congress did and that is why bankruptcy, more specifically Chapter 7, is the real deal.
(2) Get rid of “debt” stress and worry.
It is important to get rid of certain types of unsecured debts, mainly because it helps achieve a more important goal of eliminating stress and worry. The stress and worry that comes with having to deal day in, day out with crippling amounts of debt.
I have found that until people find out how bankruptcy really works, they believe there is nothing they can do to get rid of debt, and that they will be in debt for the rest of their lives, and there is no hope. They feel that with so much debt, their families will have to go without and that with so much debt they will never get ahead. They feel that they will never be able to buy anything again. In most cases, very simply, these things are just not true.
What a relief people feel when they come into our offices and find out how bankruptcy really works. I cannot describe what a happy surprise this is for many people. For many, it seems like a dream come true and it is. It’s the way Congress created the bankruptcy laws.
I have found that people don’t file bankruptcy to get rid of debt. They file bankruptcy to get rid of the stress of dealing with debt and that hopeless feeling of dealing with something that has got out of control. Something that has taken over their lives and all of their waking moments and that is putting their future on hold.
The look on the faces of many people, when we tell them how much debt and how much stress they can get rid of by filing bankruptcy, is almost comical. They don’t know how to react. They are so used to feeling stressed out, worrying, and feeling helpless. They don’t know how to feel when they find out for the first time how much debt bankruptcy can really eliminate. When we tell them how much debt bankruptcy can eliminate and how easy it is to file you can see the heavy anvil being lifted from their chests. It doesn’t seem normal to them. We have to keep telling them, “It’s true. Believe it or not. It’s true. Bankruptcy really does this.” For a while, they just go on saying things like, “But I thought this" or “But I thought that,” and we have to keep reassuring them that what we are telling them is true. Sometimes, we even have to tell them to sit back and take some deep breaths to let the information sink in.
Giving people who have been struggling with overwhelming debt for months or years news that brings this kind of relief is what it’s all about for lawyers like us. This is why practicing bankruptcy law is both a privilege and a pleasure.
(3) Keep and protect property you want to keep.
For whatever reason, people think that if they file bankruptcy, they will lose everything that they have. Nothing could be further from the truth. Most of our clients keep everything they own...and lose nothing. Why? Because there are things called "exemptions". We talked about them in the section entitled: "Learn about Chapter 7”. The same exemptions apply to help protect property in cases filed under Chapter 13. In the occasional case where it looks like a client has too much "stuff" to cover with exemptions, that is where Chapter 13 comes to the rescue. In Chapter 13, people can keep all their stuff; they just have to pay in a little more money as mentioned above.
Using California as an example, there are exemptions to cover lots of things including houses, mobile homes, land, cars, trucks, household goods and furniture, wages, life insurance cash value, personal injury and worker's compensation claims, tools of trade, retirement plans, IRA's, and the list goes on.
A Word Of Caution: Federal and State exemptions can provide some wonderful and amazing results, but exemption law can be very tricky and complicated. There are many traps for the unwary. A thorough understanding of all available exemptions including a thorough understanding of all the Court cases interpreting those exemptions is crucial. Not knowing about the exemptions you have available to you may unnecessarily keep you from obtaining the bankruptcy relief you deserve. On the other hand, claiming exemptions you do not have a right to may cause you to lose some of your property. Why? Because once you file a Chapter 7 bankruptcy case, you do not have the right to “unfile” it. Solution: Pick an attorney who does nothing but bankruptcy for a living and one who knows the exemptions laws where you live.
Valuing property: A big part of the process of analyzing a potential client’s case is so a determination can be made as to what property can be protected and to determine the correct value for the client’s property. This is a fairly complicated but an extremely important part of the process. The problem is that there are values and then there are other values. An item may have different values depending upon the reason you are trying to value it. For purposes of Chapter 7, it is important to determine what we call the “liquidation” value, as opposed to the listing value, the value to the client, what the client paid for the property, what the client would like the property to be worth, etc.
Filing bankruptcy does NOT mean you get to keep all your property free. If there is a lien against the property as in the example above with the house, the creditor holding the lien still needs to be paid. In our house example, equity is no problem, but if the husband and wife want to keep the house, they would still have to keep current on the $100,000 mortgage.
The same would apply for a car loan. Generally, when you get a car loan, you give the lender a lien against your car title. In most cases, this lien is not affected by filing a bankruptcy under Chapter 7. Generally, liens pass through bankruptcy unaffected. Assuming there is an exemption to cover whatever “equity” there is in the car, the client would still have to keep current on the car loan if the client wants to keep the car. If the car loan is not kept current, filing under Chapter 7 will not keep the lender from eventually repossessing the car.
For purposes of Chapter 7, if a client wants to keep a piece of property and there is money owed on that property, the client would have to “catch-up” on the payments owed before filing bankruptcy. Chapter 7 has no rules for catching up on payments due on property that has a lien against it. If the client cannot catch up on these payments, but the client still wants to keep the property as in the case of the house or car in the examples above the client would have to consider filing a Chapter 13 case. Chapter 13 does have a rule for catching up on such payments. For more information on Chapter 13, see Learn about Chapter 13.
(4) Get out from under debt on property you are willing to say
Chapter 7 can help you get out from under a debt associated with a certain piece of property that you:
(i) Have lost control of, (ii) No longer want, or (iii) Can no longer afford.
Example 1 (Property you have lost control of): Let’s say you and your spouse own a house and that both of you owe on the mortgage. Then, let’s say you get divorced, and in the divorce, you agree to give your spouse the house, with the idea that your spouse will refinance the mortgage and therefore get your name off the mortgage. But, let’s say the spouse does not refinance. This can be a big problem because you are still liable on the mortgage and if your former spouse does not pay the mortgage, the mortgage company will come after you for the money. By filing bankruptcy, you can remove your name from the mortgage, at least in terms of having to worry about the mortgage lender ever coming after you. This allows you stop worrying about the mortgage and allows you get on with your life. What a great benefit of bankruptcy.
Example 2 (Property you no longer want): Let’s say you own a mobile home that is worth $15,000, but you owe $25,000 on it. You have tried unsuccessfully to sell it, but the people who want to buy it cannot be approved for the financing to complete the purchase. For example, you have to move elsewhere. Unless you can figure out a way to get rid of the mobile home and the debt owed on it, you are stuck. Filing bankruptcy under either Chapter 7 or 13 can help. Here is how it works. As part of your bankruptcy, let’s say you decide to “surrender” (which means give back) the mobile home to the person or company that holds the lien against it (that is the person or company to whom you owe the $25,000). This person or company would then come get the mobile home and put it up for sale. If this happened outside of bankruptcy, once they sell it they would come back at you to collect any money they did not get from the sale. In our example, if they sold it for $15,000, you would still owe them for the residual $10,000 of the original $25,000. This is NOT the case in Chapter 7 bankruptcy. In Chapter 7, under the law, after you surrender property back to a lender all that’s left is an “unsecured” claim against you and unsecured claims are what bankruptcy gets rid of best.
Back to our example, filing Chapter 7 helps you solve a big problem. It gets rid of both the mobile home and the entire debt against it. Is that amazing or what? And this does not apply to just mobile homes.
The same applies with respect to all types of property you want to get rid of.
Example 3 (Property you can no longer afford): Let’s say you own a home, but you can no longer afford to make the mortgage payment. What do you do? By filing bankruptcy, and by agreeing to give up the home, you can get out from under the mortgage payment. In this case, the house would be foreclosed on. Outside bankruptcy, the problem is that the house would be foreclosed on and then the mortgage lender would sue you for whatever money it did not get out of the house. By filing bankruptcy under Chapter 7, if you decide to give up a house, you are discharged from the whole debt. What this means is that the mortgage lender cannot come after you. The mortgage lender can sell the house and that’s it. If the mortgage lender does not get enough out of the sale of the house to pay the full mortgage debt, by filing Chapter 7, the mortgage lender is forever barred from coming after you for the unpaid part.
(5) Stopping Lawsuits and Creditor Harassment.
One of the most powerful things about bankruptcy is the “automatic stay”. The words “automatic stay” don’t sound very powerful, but believe me this thing called the “automatic stay” is very powerful. Here is what happens.
Immediately, when you file bankruptcy, you get bankruptcy protection. The protection comes in the form of a Court Order, which the Court immediately sends out to all creditors, demanding that they leave you alone. This Order has a name. It is called the “automatic stay”.
If a creditor does NOT comply with this order, the Bankruptcy Court has the power to punish the creditor severely. Most creditors know this and take steps to immediately comply with the Order. More specifically, the creditor must stop all collection calls at home and at work, stop writing collection letters, stop all lawsuits, take whatever steps are necessary to “call off the dogs”, as in the case of “repo” men and foreclosing attorneys, and stop all garnishments for at least taxes and student loans. Thereafter, and for the duration of the Chapter 7 case, if the creditor feels it has the right to do something, the creditor must make a formal application to the Court. By having to make a formal application to the Court, the Court can take steps to provide you the protection you need and deserve.
At the end of your Chapter 7 case, the automatic stay expires, but in most cases, it doesn’t matter. Why? With respect to all the debts that get “discharged” (which means permanently “GONE”), it is immediately replaced with a “permanent” order to protect you. This order also has a name. It is called the “discharge injunction”.
At the end of your Chapter 7, creditors with “non-dischargeable” debts like alimony, child support, student loans, and certain taxes can pick up where they left off. The good news is that hopefully, if you got rid of enough of the other debt in your bankruptcy case, you will now have more income and be in a better position to deal with these residual “non-dischargeable” debts.
(6) Freeing up income for your family.
The whole idea of getting rid of some debt is so that you don’t have to pay on that debt anymore. This relieves stress and that’s great, but it also does something else. It frees up your income to take care of other more important things...like your normal monthly living expenses. This means that hopefully, if you have an income you are in a better position to take care of your family. Most of our clients are saving hundreds of dollars per month, and that’s big!
Being in a better position to take care of your family can get your life started again.
Not filing bankruptcy can mean you are “stuck in neutral” or worse, “stuck in reverse”. Filing bankruptcy and getting rid of some of the burden of debt, generally means you and your family can once again start moving forward. You and your family get a “second chance” at a fresh start. This is only one of the amazing things that filing bankruptcy can do for you and your family.
(7) Putting you in a position to earn more money and save.
For most people with mounting bills, it usually becomes a situation of “Borrow from Peter to Pay Paul” just to stay current. For most people, not filing bankruptcy means the more you earn, the closer you get to breaking even each month. Forget about “saving for a rainy day”. The worst comes when you don’t earn enough and you can’t borrow any more money from “Peter”. At that point, you are in big trouble.
Filing bankruptcy solves many of these problems. The idea is this. By filing bankruptcy, you can hopefully get rid of enough debt to live on what you earn. This is the first step. The second step is to earn more money but in a more “debt free” situation where you do not have to use it just to stay current. If you get rid of enough debt in bankruptcy to really make a difference then and thereafter if you are careful, you should be able to start saving money especially as you get wage increases or promotions in your job.
(8) Filing bankruptcy can help you re-build your credit.
There are two important steps needed to rebuild your credit. The first step is file bankruptcy and get rid of debt. The second is to save money. Without doubt, if you are to the point where you need to file bankruptcy, your credit is beyond repair already. Bluntly put, your credit is dead. If so, the first step in rebuilding credit is to get rid of some debt. To do this absolutely nothing works better or faster than bankruptcy. The fastest way to get rid of debt in bankruptcy is Chapter 7. Once you file Chapter 7 bankruptcy it’s done and over with in three or four months. All of a sudden, you have less debt.
Assuming that you hold your life together, keep your job, don’t get divorced, emergencies are limited, you get the raises, promotions you deserve a job where you bring less and less stress to work each day because debts are no longer stressing you out) then for the first time in a long time you can start saving some money. Saving money gives you the necessary down payment for buying new things...and on and on you go rebuilding credit.
In addition, getting rid of some debt by filing your bankruptcy makes your debt to income ratio look better. Over time, you have money in the bank from saving money on income no longer sucked away by your “now-gone” bills. Then gradually and naturally, you start attracting the attention of more and more lenders willing to give you more credit. And why not? You are now in a position to handle more credit. At this point, life is starting to look good again and you are well on your way to rebuilding your credit in no small part because you made a smart decision to file bankruptcy.
(9) Important Disclaimer.
The bankruptcy laws are extensive and complicated. Consequently, most good bankruptcy attorneys do nothing but bankruptcy. It is a full-time job to keep up on the bankruptcy laws, exemptions laws, and procedures while at the same time serving all the other needs of our clients. I mention this because although all of the information mentioned before is true, in many if not most circumstances (1) Results will vary depending on your goals, assets, debts, income and expenses, and (2) Because it was necessary to oversimplify the information and the conclusions in order to make important points. The simple truth is that you cannot become an experienced bankruptcy attorney or learn enough to become knowledgeable enough to file your own bankruptcy case by simply reading the material on this or any other website. Anyone that would have you believe otherwise is simply lying to you for their personal gain or fooling himself. The information on this website is simply meant to introduce you to important concepts about bankruptcy and to let you know the truth: That bankruptcy does NOT work the way you think or the way you have always been told. The best advice I can give you is to set up a consultation with the most experienced bankruptcy attorney you can find. Most of the time, except perhaps, for people who own and run large or fairly large businesses you can do so FREE. Our office offers a totally FREE initial consultation. So, you can learn about all your rights and all your options, bankruptcy and otherwise. You can get fast answers to all your questions about debt and how to deal with it.
(10) What does it cost and how do I pay?
In terms of benefit, paying a bankruptcy attorney may be the best bang you ever get for your buck. In many cases it costs only $2,500 to pay an experienced bankruptcy attorney to handle and file your Chapter 7. You can always find an attorney to do it cheaper but you know what they say: you get what you pay for. The expense is worth it. Believe me; I’ve had to clean up messes caused by inexperienced attorneys and even bigger messes caused by people deluded into thinking that filing bankruptcy is simple and who try to file on their own without an attorney. Yes, you can file your own bankruptcy case. Just like you can save the cost of a surgeon and cut a bullet out of your own arm. Would you? There is a reason for the phrase: “penny wise...but pound foolish”. Don’t take chances with your family and your future. Hire an experienced bankruptcy attorney. You will be glad you did. Anyone who advises you otherwise is lying to you or ignorant as to just how tricky and complex the bankruptcy laws are.
The experienced bankruptcy attorney is just that, experienced. You get the benefit of all that experience to help you decide whether to file bankruptcy or not, to guide you in analyzing the pros and cons of Chapter 7 versus Chapter 13, to avoid mistakes that less experienced attorneys often make, to help you apply exemptions to protect your property. to answer questions that only an experienced attorney knows how to answer, to make the experience more understandable, to efficiently guide you and your case through the process, to deal with anything unexpected that may come up, and to explain what you can expect from life after bankruptcy. A good, experienced bankruptcy attorney can also optionally provide you extra services like: (1) lien avoidance and vehicle redemption which save you even more money, and (2) defense of adversary proceedings in case some creditor wrongly accuses you of fraud or some other wrongdoing. All this is in addition to the fact that the experienced attorney knows how to achieve the best results in terms of getting rid of the most debt possible.
All this is in addition to the fact that the cost of hiring an experienced attorney is generally minimal when compared to the amount of debt (and future interest) from which you can get relief. Many times, the money saved in just one month on debts you no longer have to pay is enough to pay the entire attorney fee.
In addition to the cost of the attorney...there is the bankruptcy filing fee. The filing fee for Chapter 7 is $299. The attorney collects this from you...and then simply forwards it to the Court. In addition, there may be some other small costs for such things as obtaining credit reports and performing judgment searches.
(11) How Do I Come Up With The Money To File Bankruptcy?
I can’t pay all my bills now. How in the world do I come up with the money to pay an attorney? That’s a great question. We have at least 23 separate and distinct answers. One answer is to stop paying on all the debts that you are going to get rid of by filing bankruptcy. Here is the entire list:
25 Ways To Come Up With The Money To File Your Case.
Cash On Hand.
Immediately stop paying debts you can get rid of in your bankruptcy.
Giving Up A House? Stop paying the mortgage payments, and use that money to file your case.
Gifts from friends or family.
Borrow from friend or family.
Take out a 401k Loan.
Get more hours at work.
Temporarily keep the 2nd or 3rd job.
Get a temporary 2nd or 3rd job.
Have your non-working spouse get a temporary job.
Take a loan against your “cash value” life insurance policy.
Move in with someone else and stay long enough to save up the money.
Have someone move in with you, who can help pay your monthly expenses, so you can save some money.
Put off paying the mortgage or vehicle payment for a month or so (Chapter 13 only). You can use Chapter 13 to catch up on any payments missed.
Rent out A Room.
Get a roommate, to bring in additional money.
Cut out or cut down on unnecessary monthly expenses.
Have your working age kids get temporary jobs.
Consider sacrificing an asset you owe on to cut out an expense.
Think about increases in income or decreases in expenses that you expect to occur in the next few weeks or months.
Get a loan or advance on your pay from your employer.
(12) How fast can I get relief?
We can’t speak for other attorneys but our answer is this. In most cases, we work as fast as you pay us and provide us with the documents and other information necessary to prepare the schedules required in filing your case. Your case can be filed in as little as a week and even quicker in an emergency.