Nora's Guide to Bankruptcy

There are two different kinds of bankruptcy for people. In both cases, the idea is to allow those who are overwhelmed with debt to get out from under and make a fresh start.

The Chapter 13 bankruptcy allows you to restructure your debt. You come up with a plan to repay all or most of your debts, over three to five years. Late charges stop. You make one payment to the bankruptcy trustee, who makes payments to your creditors. Under this kind of bankruptcy, you usually can keep all your property.

But if you don't have much property, you may be better off doing a chapter 7 bankruptcy, which I'll discuss here. Ask me if you want more information about Chapter 13.

Chapter Seven

This kind of bankruptcy is simply a liquidation of your estate. The theory is that you give everything you own to the bankruptcy court. The court sells off your stuff and pays off your creditors, as far as it goes. But under Virginia law, you are allowed to keep certain amounts in certain categories. Don't worry about losing anything. I'll be able to tell from your worksheet whether we'll have any problem in your case. It's very rare for a client to lose anything to the court. That's not because I'm so brilliant (although I am) but because the limits are generous enough to cover most people who file this kind of bankruptcy. If we need to do something special to protect your property, such as get an appraisal, I'll let you know. We'll know before you file if there's a risk you'll lose something to the trustee.

Keeping Some Debt

You have to list all your debts. The Court won't let you play favorites and keep some out of the bankruptcy. But you can voluntarily repay some creditors after you file. For example, if you're still paying on your car and you want to keep it, you can sign a "reaffirmation" agreement, which says that, even though you're filing bankruptcy, you want to be obligated on that one. But it does legally bind you, so be sure about your decision. Also, I'll have to be sure that you can afford to do it. I'll have to sign something saying that reaffirming the debt will not be a hardship on you or your family. I can't do that unless I think that's true.

Similarly, you might want to repay a doctor or a dentist, so that you can keep going to them after the bankruptcy. Obviously, a doctor won't keep you as a patient if you haven't paid your bill.

Let me know if there's anything you want to reaffirm. But don't get carried away. The whole purpose of bankruptcy is to allow you to start fresh. There's no point in keeping much debt. Bankruptcy is not the end of the world. You will be able to reestablish your credit some day in the future.

Forgetting Some Debt

Put down everybody! If you're going to do this, do it. Even if the debt is old, and you haven't heard from the creditor for awhile, include it to be on the safe side. Also include any potential debt, such as a car accident where you may be at fault. Make sure I know about all your debts so I can make sure the Court knows about all of them. And please make sure I have complete names and addresses of everybody you owe. We want them to know about this, so they'll write you off and leave you alone. Make a clean break.

List All Your Property

I need to know about everything you own and what it's worth. The value is what you would have to pay if you bought it in its current condition. Go through your home, room by room, and write down everything. You must tell the court about everything you own.

Secured Property

If you have property that secures a debt, the creditor is entitled to the property or the money you still owe on the property. Some things are obvious, such as a car or a house. But some things aren't quite so obvious. Sometimes furniture, jewelry or appliances are secured. I usually list those types of accounts as unsecured at first and make them prove to me that they are indeed secured.

Here's how it usually happens: several weeks after we file the bankruptcy, I'll get a call or a letter from the people at Dell saying "does she want to keep the computer or give it back?" I'll tell them to send me proof that they're really secured. Frequently they can produce a sales slip or the original credit application, which says that you gave them a purchase money security interest in the merchandise.

You have three choices: give it back, reaffirm the whole amount of the debt, or "redeem" it – buy it from them for the current fair market value, which is less than the amount you owe. For example, I'll say "she doesn't want to reaffirm the entire debt, but she'll pay you $100 for the computer." I can frequently work out payments, sometimes at no interest. But that's a matter of negotiation.

Don't worry – nothing happens quickly and I can usually work out something reasonable.

Exceptions

Some debts cannot be wiped away or discharged in bankruptcy. These include child or spousal support, most government fines and taxes, and student loans. The creditors in these cases don't have to object or file anything with the Court. As a matter of law, these debts are not discharged in bankruptcy so you'll be stuck with them.

Objections

You have a right to file bankruptcy as long you qualify under the law. But your creditors can object to a particular debt being discharged if there is a good reason. A typical reason is fraud. If you charge a lot on your credit card right before filing, it looks as though you knew you weren't going to pay it back. Also, if you lied outrageously on your credit application, the creditor can claim you defrauded the company. These kinds of objections are quite rare. As long as I know everything about your case, I can usually tell whether we'll have any trouble. I'm usually able to work out something out of court.

Counseling

You have to go through credit counseling before you file. I'll provide a list of approved agencies. You can do this online or on the telephone. You give the counselor information, such as your debts and how much money you make. At the end of the session, the agency will provide a certificate showing that completed the counseling. You can't file until you get that certificate.

Procedure

You fill out the worksheets and get them back to me. I use that information to draw up your petition. You come in to my office to sign. We go over everything, page by page, to make sure I got everything right and you understand everything.

I file the petition with the Court. From that moment, everything is under the jurisdiction of the Bankruptcy Court. None of your creditors may contact you and all lawsuits stop. I have to file papers in the state court to stop those suits, so make sure I have the paperwork.

About a month after we file, we have to go to a hearing before a bankruptcy trustee. It's called a "creditors' meeting" because your creditors can show up and ask you questions about your debts and assets. Most creditors don't bother to show up. Even if they, they can only ask you questions about your debts and assets. Don't worry. I'll be there and I'll keep anyone from being mean to you!

The trustee will ask you about a dozen questions. I'll give you a list of the usual questions ahead of time, so you'll be completely prepared. I'll be able to tell if there's anything special about your case that the trustee will want to know about.

Basically, the trustee is looking for assets and you don't have many. As long as you tell me everything, and I tell the Court everything, we'll be fine.

About two months after the hearing, you'll get the court order in the mail, saying that your debts have been discharged. Hang on to that and to your copy of the petition, which I'll give you at the hearing. Let me know if you move before it's all over.

Debtor Education

But before you can get the discharge, you also have to complete a debtor education class. It's similar to the credit counseling you took before you filed. Again, this can be done online or on the telephone. I'll provide you a list of approved agencies. You can't get a discharge until you get that certificate.

Aftereffects

A few months after your bankruptcy is over, it's a good idea to get a copy of your credit report. It should show that all your debts have been discharged in bankruptcy. But sometimes, old debts will show up as still being owed. The problem is the creditors don't have any incentive to report back to the credit-reporting agency that the debt has been discharged. So you'll have to take care of it. Just send the credit-reporting agency copies of the front page of the petition, the pages where your creditors are listed, and the discharge order.

Frequently, the right office doesn't get the word and you'll get a call or bill from some creditor long after the bankruptcy. Just send them the same documents.

Of course, if you get a "warrant in debt" or some other official court document, let me know right away. You can't ignore a lawsuit, even if the debt has been charged. I'll have to file court papers to get rid of it.

Questions?

Please call me at (703) 243-2044 or email nraum@aol.com! This is your case and you need to understand everything. Also, I need to understand your situation so please tell me everything.