Frequently Asked Questions About Bankruptcy
The Law Office of Albert Coto provides bankruptcy representation to individuals and businesses in Washington, D.C., and the surrounding counties of Maryland. Below are some common questions debtors ask our attorney when they are considering bankruptcy.
We can answer your specific questions in a free consultation. Call 240-233-6816.
What is the benefit of filing for bankruptcy?
The purpose behind bankruptcy laws is to provide the option of a “fresh start” to those who are in monetary debt and are not able to comply with the payments because of financial hardship. The main objective of the debtor is to be exonerated from those debts that qualify. The relief or exoneration, also known as rehabilitation, is a court order whereby a federal bankruptcy judge declares that the debtor is no longer legally liable for those debts, thus eliminating the legal remedies their creditors may have had for the collection of such debts.
What are the different types of bankruptcy?
There are two main types of bankruptcy that help protect people who are going through financial hardships that do not allow them to pay their creditors. Most people file under Chapter 7 and Chapter 13 of the Bankruptcy Code, explained below. There is also the Chapter 11 process for businesses and for individuals whose assets exceed the debt limits under Chapter 13 and want to protect those assets against creditor actions.
What protection does bankruptcy offer the person?
Generally, filing a bankruptcy petition puts into operation a legal mechanism called “automatic stay.” This mechanism stops all legal processes of collections against the person and also forces creditors to stop all contact with the person who declares bankruptcy. Due to this, processes of eviction or eviction of a property, auctions of property, repossession of vehicles, garnishment of the salary and bank accounts are stopped.
What is Chapter 7 bankruptcy?
The purpose of Chapter 7, also called “direct bankruptcy” or “liquidation,” is to give the debtor a fresh start. Chapter 7 seeks to eliminate all unsecured debts, which are the majority of debts. In these types of cases, the court appoints a trustee to determine if there are nonexempt assets that can be sold or liquidated to pay creditors. However, in most of these cases, all or most of the assets of the debtors can be exempted and, usually, the debtors end up with all their assets.
What prevents people from seeking Chapter 7 protection?
Among the main reasons why people do not apply for protection under Chapter 7 bankruptcy laws are:
1) Your current monthly income is above your state’s average income for your family size. Your current monthly income is calculated by getting the average income you have had over the last six months.
2) Your current monthly income is below your state’s average income for your family size, but after paying all your usual expenses, you still have money available to pay your creditors.
3) You filed a Chapter 7 bankruptcy within the last eight years. If this is the case, you may want to consider filing a Chapter 13 bankruptcy.
4) In addition, there are situations in which even if you can qualify for Chapter 7, it would be more favorable for you to file Chapter 13, such as to preserve specific assets.
What is Chapter 13 bankruptcy?
Chapter 13 of the Bankruptcy Code is a three-to-five-year process. The person files a petition to the Bankruptcy Court requesting protection since they cannot pay all their debts. The person presents a debt repayment plan to the court. The court appoints an administrator who verifies your monthly income and expenses and administers the plan’s payments.
One of the major advantages of Chapter 13 is that you deal with your creditors in the same process. The monthly payment varies depending on the type of debts the person has. Certain debts must be paid in full as “priority debts” (as would be certain state or federal taxes, maintenance obligations, etc.), including arrears in the payment of your mortgage or vehicle loan and liens on property, among others.
On the other hand, most debts with uninsured creditors are partially paid according to the possibilities of the person. Usually, the balance on uninsured debts is discharged at the end of Chapter 13.
What are the main reasons people apply for Chapter 13 protection?
Among the main reasons why people apply for Chapter 13 protection are:
1) You do not qualify for Chapter 7.
2) You wish to pay your creditors without incurring the payment of more interest and having a fixed monthly amount.
3) You are late with the payment of you mortgage, your creditor wants to finish the property and you want to stop the auction and catch up with the payment of the mortgage.
4) You have two mortgage loans on your residence, the value of your residence is less than what you owed on the second loan and you want to eliminate the second loan.
5) You are late with the payment of your vehicle, your creditor intends to recover possession of the vehicle and to top it off, and you want to stop the repossession and catch up with the payments of the same.
6) You owe a lot of money to the tax authorities for nondischargeable taxes and need protection against wage garnishment or bank accounts.
7) You have goods with a lot of surplus value – what you owe on those goods is less than what the goods are worth – and you can finish off and pay the creditors with the profits. You have exhausted your exemptions and want to keep those goods.
Chapter 13 offers you the same protections as Chapter 7, protects assets that you have not been able to exempt and lets you make payments that are usually much lower than the payments you would have to make if you did not apply for protection under Chapter 13.
What type of debts are not able to be forgiven?
Some debts are considered nondischargeable and therefore, even if the person receives a discharge, the debt survives the bankruptcy and the creditor can resume debt collection once the person has left bankruptcy. The following are examples of debts that are not dischargeable and generally survive bankruptcy: state or federal taxes that are owed; unpaid child support or spousal maintenance; debts acquired in divorce proceedings or separation in favor of the former spouse or a child; fines and penalties levied by a government entity; and student loans.
What relief and benefits do people get from filing for bankruptcy?
Among the main benefits that people generally get when filing for bankruptcy are the following:
1) It temporarily stops property, eviction or eviction processes, giving you more time to make a reasoned decision and, depending on the type of bankruptcy, gives you the ability to catch up with mortgage payments or time to find where to relocate.
2) It stops harassment from your creditors, including calls at inappropriate times, calls to your employer’s office and collection letters, among other tactics.
3) It stops the embargoes of bank accounts and salaries. It provides you with the tranquility of knowing that you are facing your situation and are on the way to finding a solution.
4) Once you get the discharge, bankruptcy actually helps to improve your credit.
The benefits and reassurance that a bankruptcy case can provide you are many. Bankruptcy laws are complex, and that is why you need a professional with experience in this legal area to help you navigate them.
Do You Have More Bankruptcy Questions?
Do not hesitate to call us today at 240-233-6816 or contact us by email to schedule your free consultation. Remember, every problem has a solution. If bankruptcy is not the answer for you, we can help you explore other debt relief options.
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We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.