Answering Your Bankruptcy Questions

Are there any bankruptcy information videos?

Yes. The Administrative Office of the U.S. Courts on behalf of the Federal Judiciary maintains a web site with several informative videos. You can find them here.

Should I maintain a home when the bankruptcy petition says I am surrendering the home?

If you file a Chapter 7 bankruptcy petition, and you own a home, it is possible that the bankruptcy court will sell your home for the benefit of your creditors. It is also possible that the court will abandon your home because a large mortgage makes is difficult or impossible to sell your home for a profit. Likewise, the mortgage company may delay foreclosure in the hopes the housing market will improve or because documents are missing. I recommend you stay in the home for as long as possible. You are responsible for keeping the grass cut and for real estate taxes until the foreclosure is complete, and there is often a delay in the actual foreclosure.

Should I keep my home insured after I file bankruptcy?

Your debt to the mortgage company may have been discharged by the bankruptcy petition, but you are still the home owner until the mortgage company files the foreclosure deed or accepts a deed in lieu of foreclosure. You can be held liable if someone is injured while on your property; therefore you should discuss with your insurance agent what type and how much insurance you should purchase.

Your bankruptcy case may close leaving you as the owner of record for home which you intend to surrender. If that happens, you will remain responsible for future homeowner association fees, future property taxes, and future land maintenance fees. If you do not keep the grass cut and rubbish removed from the property, the City or County will send a work crew to the property and then send you a large bill for its services. The law regarding future homeowner association fees is still developing, so speak with your attorney before paying post petition homeowner association fees.

What is the Virginia Homestead Exemption?

The homestead exemption is an exemption that must be claimed. You claim the exemption by filing a homestead deed in the courthouse of the city or county where you live. It is not a deed of sale such a the deed you get when you buy a home. An example can be found at http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+34-14.

How will bankruptcy affect my auto loan?

You can choose to surrender the vehicle, or you can choose a strategy that allows you to keep the vehicle in exchange for some type of payment.

If you file a chapter 7 petition, you can ask the lender to reaffirm the debt. If the debt is reaffirmed, you will remain legally liable for the debt; and you will be able to keep the vehicle so long as you make the payments on time in full. You can redeem the vehicle by making a lump sum payment equal to the value of the vehicle or the balance of the loan, whichever is less. This will also allow you to keep the vehicle. Some lenders will loan you the amount needed to redeem the vehicle so that you end up with a new auto loan with terms that are more favorable.

If you file a chapter 13 petition, you can pay for the vehicle over a 3 to 5 year period. The interest rate can be lowered and the monthly payment altered. If the vehicle was purchased more than 910 days ago, you can pay the value of the vehicle or the balance of the loan, whichever is less. This also applies to auto loans which were not used to purchase the vehicle. There are sometimes called payday title loans.

When will the bankruptcy court decide if my student loan is discharged?

The court will not automatically review whether the repayment of the student loan would cause an undue financial hardship. There is a separate procedure which is initiated by the debtor filing Complaint to Determine Discharge. It allows some people to discharge their student loans. Student loans are not dischargeable in bankruptcy unless the debtor proves to the court that the repayment of the debt would be an undue financial hardship. Typically, the debtor will need to prove that the debtor will be forced to live at the minimum poverty level if forced to repay the student loans. The court will also review whether the debtor has ever made payment on the loan. A hardship discharge involves additional work and an additional trip to the bankruptcy courthouse for a hearing before a bankruptcy judge. Most attorneys charge extra for preparing such a hardship petition.

You must be prepared to prove that:

  1. You currently do not have the ability to repay the student loan;
  2. The inability to pay is likely to continue into the future;
  3. There is an additional factor limiting your ability to repay such as a physical disability, failure to graduate, the school going out of business, etc.;
  4. Your life style is average and not luxurious;
  5. You have repaid a portion of the student loan debt or made a good faith effort to repay the student loan.

If the bankruptcy case has been closed, it is still possible to reopen the file and petition the judge to grant a hardship discharge. If the student loan is not discharged, the creditor can continue to attempt to collect the debt including garnishing a paycheck and seizing a tax return. If the debtor files a joint tax return, the spouse who is not liable on the student loan may be able to file a tax return as an "injured spouse." so that he or she is able to keep his or her share of the tax return. If both spouses are liable for a student loan, the entire tax return may be offset. Offset issues arise where spouses file joint returns and only one spouse owes a student loan debt.

If you don’t qualify to have your student loans discharged, you can ask to have your payment reduced under the "income contingent repayment program." That program will set the payment at 20% of income after subtracting amount equal to poverty guidelines (8590 for one). It is a good program but is not for everyone. If the income contingent repayment program is not appealing, the debtor can file a chapter 13 petition and ask the court set a payment arrangement that fits the needs of the debtor.

What are the types of bankruptcy?

CHAPTER 7: It is frequently referred to as a liquidation bankruptcy. Most debtors keep all of their property because all of their property is necessary for a fresh start. Unnecessary property, sometimes called unexempt property, such as luxury goods, is sold by the trustee to pay your creditors. It is used primarily by individuals who wish to free themselves of debt simply and inexpensively, but may also be used by businesses that wish to liquidate and terminate their business. Unexempt property is collected and reduced to cash. The cash is then distributed to creditors. An unsecured creditor will only receive a share of the cash if it files a proof of claim. Secured creditors retain the right to repossess collateral if the debt is not paid as it comes due. The debtor normally receives a discharge a few months after the case is filed.

CHAPTER 13: It is frequently referred to as a "wage earner" bankruptcy, although it is available to individuals with regular income from any source, not just wages. You can usually keep your property. The court must approve your repayment plan and your budget. Under this chapter, debtors are permitted to repay creditors, in full or in part, in installments over a three-year period, during which time creditors are prohibited from starting or continuing collection efforts. The debtor normally receives a discharge after all of the monthly payments have been tendered.

CHAPTER 11: Filed by corporations

CHAPTER 12: Filed by family farmers.

Does it mater if I filed bankruptcy before?

There are limits on how often you can file bankruptcy. The length of the time limit depends upon the type of bankruptcy to be filed this time and the type of bankruptcy last filed. The protection of the bankruptcy court may be reduced or limited if there was a bankruptcy pending within the last 12 months. Furthermore, a prior bankruptcy means you may have filed a prior homestead deed. Past homestead deeds reduce the available exemption when the new case is filed. The end result is that you might not be permitted to keep as much of your property as compared to a first time filer. If you have sufficient income and have equity in your home, you should ask a lawyer about a Chapter 13 repayment bankruptcy. A Chapter 13 will typically allow you to keep the majority of your assets.

Are Income Taxes Dischargeable?

Most tax debt survives bankruptcy, but not all. Do not give up hope. A chapter 7 bankruptcy discharge does not discharge an individual of an income tax unless the tax is more than three years old. The age of the tax is measured from the date the return was due. In addition, the tax return must have been filed at least two years ago. Lastly, the tax return cannot have been a fraudulent tax return. There can be mistakes, but not fraud. Most tax liens survive bankruptcy. If a lien has attached to your property, and the lien is not avoided, the lien can be enforced.

What are some examples of debt that survive bankruptcy?

  • Child Support: A bankruptcy discharge does not relieve an individual of liability for unpaid alimony or child support.
  • Court Fines and Restitution: A bankruptcy discharge does not relieve an individual of liability for most court fines and restitution.
  • Personal Injury Caused by Drunk Driving: A bankruptcy discharge does not relieve an individual of liability for debts incurred while operating a motor vehicle or boat while under the influence of a drug or alcohol.
  • Joint Debt: A bankruptcy discharge protects the individual which filed the bankruptcy petition. The nonfiling co-debtor will remain liable for debts which he or she guaranteed or cosigned.

Why did the bankruptcy trustee ask me if I repaid a debt prior to filing the bankruptcy petition?

You cannot give special treatment to creditors prior to filing bankruptcy. The bankruptcy court can order creditors to return payments if you gave the creditor special treatment. Special treatment generally means you paid more than $600.00 to an unsecured creditor during the 90 days proceeding the filing of the bankruptcy petition. So a monthly payment of $200 or more will put the creditor over the limit. Furthermore, the bankruptcy court can order family members and business partners to return all payments in any dollar amount made during the 12 months proceeding the filing of the bankruptcy petition.

Can I file bankruptcy if I have bounced checks?

You can file bankruptcy even if some of your debts are due to "bad checks." This does not mean the creditor has no recourse. For example, a merchant that received the bad check in exchange for goods can ask that the debt be excluded from discharge. Furthermore, filing bankruptcy does not prevent a prosecutor from bringing a criminal charge for writing or uttering a bad check.

Can I pawn my property prior to filing bankruptcy?

A small change in the facts can alter how I answer this question. As a general rule, you should avoid pawning property for less than it is worth. In fact, you should avoid all transfers for less than reasonable value. Ask your attorney before you give, sell, throw away, or pawn your property. Also please note that Virginia Code section 18.2-115 makes it a crime to sell, pawn, give away, or dispose of property used as collateral for a loan or purchased on credit with the right of repossession for nonpayment. If you purchased a lawn mower on credit, you cannot pawn it until it is paid for.

What is secured debt?

Does a creditor have the right to repossess collateral if the debt is not paid as the debt comes due? If so, the creditor has a lien and the debt is call "secured debt." The lien might be a voluntary lien such a lien securing the repayment of an automobile loan, or it might be involuntary such a property tax or a judgment lien. Other examples include deeds of trust, mortgages, pawn shop loans, loans to purchase furniture, jewelry store credit cards, merchant's credit card, tax liens, and mechanic liens.

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