Frequently Asked Questions

What is bankruptcy?
What type of bankruptcy should I consider?
What is Chapter 7?
What is Chapter 13?
When is Chapter 13 preferable to Chapter 7?
What can bankruptcy do for me?
What can bankruptcy not accomplish?
Is it hard to file for bankruptcy?
What must I do before filing bankruptcy?
Should I hire an attorney?
How long will the proceeding last?
Will I have to go to Court?
Will bankruptcy affect my credit?
How long will the bankruptcy be reflected on my Credit Report?
Will filing for bankruptcy affect my spouse?
How will bankruptcy affect my co-signers?
Will I lose my possessions?
What property can I keep? 
What will happen to my home and car if I file bankruptcy?
Can I own anything after bankruptcy?
Will bankruptcy wipe out all of my debts?
What will happen to my debts?
Which debts will I still owe after bankruptcy?
Will I still own secured debts after bankruptcy?
Do I have other options for secured debts?
Can I include taxes?
Can I include student loans?
May a debtor choose to pay debts after bankruptcy?
What is reaffirmation?
Do I have to reaffirm car loans or home mortgages?
Can I reaffirm credit cards or department store cards?
Do I have to reaffirm any debts?
Do I have to reaffirm on the same terms?
Should I reaffirm?
Can I change my mind after I reaffirm a debt?
How will lawsuits be affected?
Does a person lose any legal or civil rights?
Are employers notified?
May an employer terminate an employee solely because they file bankruptcy?
May utilities discriminate against me for filing bankruptcy?
Can my creditors continue to harass me?
What can a debtor do if a creditor attempts to collect a discharged debt after the case is concluded?
Can I file Chapter 7 in order to stop a repossession or foreclosure?
Can I file Chapter 13 in order to stop a repossession or foreclosure?
What is the Automatic Stay?
How does Chapter 13 differ from a private debt consolidation service?
Must all debts be paid in full through Chapter 13?
What if I cannot complete my debt consolidation payments?
Is it true that under the new Bankruptcy Law there is no more bankruptcy?
Will everyone know that I have filed bankruptcy?
Can I file for bankruptcy more than once?
Is there a minimum amount of debt required to file for bankruptcy?
Is bankruptcy is immoral?
What else should I know?

What is bankruptcy?
Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start.  The Supreme Court described the fresh start goal of bankruptcy as follows:

“It gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).

What is the Bankruptcy Code?

The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Article I, Section 8, of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies.” Under this grant of authority, Congress enacted the “Bankruptcy Code” in 1978. Debtors seeking personal bankruptcy protection in south Alabama will utilize Alabama law to exempt property they would like to keep after filing for bankruptcy. However, the majority of the bankruptcy process will be governed by federal bankruptcy law. Bankruptcy legislation changed dramatically in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Today’s Bankruptcy Code is more complex than ever before, making it important to hire a knowledgeable bankruptcy attorney.

What Procedures are followed in bankruptcy?

The day to day activities of bankruptcy courts are governed by the Federal Rules of Bankruptcy Procedure which contain a set of official forms to be used in bankruptcy cases across the country. In addition to the standard Bankruptcy Rules which are uniform nationwide, each jurisdiction publishes its own local bankruptcy rules which set out filing requirements and preferred document formats for each court. Together, the Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal policies for dealing with the debt problems of individuals and businesses.
What is the Bankruptcy Court?

There is a bankruptcy court for each judicial district in the country. Each state has one or more districts. Alabama has 3 districts, the Southern, Middle and Northern District Courts. South Alabama, Baldwin County and Mobile County bankruptcy filings are handled by the United States Bankruptcy Court for the Southern District of Alabama.
What is the Bankruptcy Trustee?

While it is the United States bankruptcy judge who has the power to adjudicate all matters before the bankruptcy court, such as whether a debtor is entitled to a discharge, much of the bankruptcy process is administrative. In Chapter 7 and Chapter 13 personal bankruptcy cases, a trustee is appointed to oversee the bankruptcy process. The trustee is vested with authority to administer the bankruptcy estate, liquidate property to satisfy the claims of creditors as well as the authority to review a debtor’s bankruptcy petition for evidence of fraud and compliance with the law.

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What type of bankruptcy should I consider?
 There are four types of bankruptcy chapters provided under the law:

Chapter 7 is known as “straight” bankruptcy or “liquidation.”  It requires a debtor to give up property which exceeds certain limits called “exemptions,” so the property can be sold to pay creditors.
Chapter 11, known as "reorganization," is used by businesses and a few individual debtors whose debts are very large.
Chapter 12 is reserved for family farmers.
Chapter 13 is called “debt adjustment.”  It requires a debtor to file a plan to pay debts (or parts of debts) from current income.

Most people filing bankruptcy will want to file under either Chapter 7 or Chapter 13.  Either type of case may be filed individually or by a married couple filing jointly.

Chapter 7 (Straight Bankruptcy)
In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.

If you want to keep property such as a home or a car and are behind on the payments on a mortgage or car loan, a Chapter 7 case probably will not be the right choice for you. That is because Chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

Chapter 13 (Reorganization)
In a Chapter 13 case, you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a Chapter 13 case is that it will allow you to keep valuable property--especially your home and car--which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors.

You should consider filing a Chapter 13 plan if you:

1. own your home and are in danger of losing it because of money problems;
2. are behind on debt payments, but can catch up if given some time;
3. have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

You will need to have enough income in Chapter 13 to pay for your necessities and to keep up with the required payments as they come due. 

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What is Chapter 7?
Chapter 7 is a section of the federal Bankruptcy Code that provides for outright cancellation of most types of personal debts without a repayment plan and for the possible sale of some types of nonexempt property to pay such debts.  Also known as “straight bankruptcy,” Chapter 7 is the simplest type of bankruptcy because it is the process of liquidating property and using the proceeds to repay debts. Often, however, little property is actually liquidated because it is tied up with liens or classified as exempt from liquidation.  The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property that the law allows you to keep. In most cases, all of your property will be exempt.

Will I lose all of my property and possessions?

Under the Bankruptcy Code, exempt property is protected from creditors when you file bankruptcy. You may exempt any property that falls into one of the exemption categories up to a specific dollar amount. You will be able to keep this exempted property after you file bankruptcy.   However, an exemption limit applies to any equity you have in the property.  Equity is the difference between the value of the property and what is owed on the property. For example, a car valued at $4000 with a loan of $3500 has an equity value of only $500.

Any property which is not exempt is sold at the direction of the bankruptcy trustee, and the proceeds are distributed to creditors. If the property is secured by a loan, such as a car or home, and you are current on the payments, the equity is covered by your exemptions, and you elect to keep making payments on the loan, you generally can keep this property after filing for bankruptcy. If all the equity is not covered by your exemptions, the trustee may elect to liquidate this asset and distribute the proceeds of the sale to creditors. Generally, in this case, you would be entitled to the value of your exemption in the asset as a cash payment.

Can I file Chapter 7 in order to stop a repossession or foreclosure?

If you are considering filing bankruptcy in order to save your home from foreclosure or avoid the repossession of a car, Chapter 7 may not be your best option. This is because Chapter 7 bankruptcy does not eliminate the right of banks or car loan creditors to foreclose on your home or repossess your property to cover your debt. If you want to stop a repossession or foreclosure, you should consider your options under a Chapter 13 debt consolidation.

Can anyone file Chapter 7?

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) made filing for Chapter 7 more difficult. Congress created the “means test,” a formula aimed at calculating disposable income. If your income is above the median family income in Alabama, you may have to file a Chapter 13 case. In determining whether you qualify under the means test to file for Chapter 7 protection, BAPCPA takes into account all the income earned by your household (your husband or wife’s income will be counted). However, the analysis only looks back six months. Your means test figures will be based only on your household income over the last six months. If you earn more than the median family income in Alabama, you must fill out “means test” forms requiring detailed information about your income and expenses. If the forms show, based on standards in the law, that you have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that you cannot file a Chapter 7 case, unless there are special extenuating circumstances.

Do I need an attorney to file Chapter 7?

Although you may file Chapter 7 without the help of an attorney, a good attorney will assist you in filing the proper papers and help you keep as many of your assets as possible, while at the same time helping you to avoid any possible charges of fraud.  A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial situation.

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What is Chapter 13?
Debt Consolidation, or Chapter 13, is that part of the Federal Bankruptcy Code under which a person may repay all or a portion of his or her debts under the supervision of the Bankruptcy Court. In a Chapter 13 case, you file a plan showing how you will pay off some of your past-due and current debts over three to five years. One of the primary advantages to filing for Chapter 13 bankruptcy is the ability to get caught up on past due mortgage and car payments. Rather than pay the arrearages over a four or five month time period as is required by many lenders, the Chapter 13 debtor is allowed three to five years to pay past due loan payments. Debt consolidation will allow you to keep your valuables-especially your home and car-which might otherwise be lost, and you may be able to reduce your unsecured debt (credit card debt for example) by as much as 95%!

In a debt consolidation case, the person who files the case submits to the Court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the Court to become effective. Once the Court approves the plan, it will prohibit your creditors from collecting their claims from you during the course of the case.

You must make regular payments to the Chapter 13 Trustee, who collects the money paid by you and disburses it to your creditors as called for in the plan. Then, upon completion of the payments called for in the plan, you will be discharged from liability for the remainder of your debts.

You should consider filing a Chapter 13 plan if you:

• Own your home and are in danger of losing it because of money problems;
• Are behind on debt payments, but can catch up if given some time; or
• Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

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When is Chapter 13 preferable to Chapter 7?
Chapter 13 is usually preferable for a debtor who:

• Wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time,
• Has valuable nonexempt property or has valuable exempt property securing debts either of which would be lost in a Chapter 7 case,
• Is not eligible for a discharge under Chapter 7,
• Has one or more substantial debts that are not dischargeable under Chapter 7 but are dischargeable under Chapter 13,
• Or has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.

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What can bankruptcy do for me?

First, filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. 

Bankruptcy may make it possible for you to:

• Eliminate the legal obligation to pay most or all of your debts.  This is called a “discharge” of debts.  It is designed to give you a fresh financial start.
• Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment).
• Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
• Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
• Restore or prevent termination of utility service.
• Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

Eliminating Debt - the Bankruptcy Discharge

The goal of most bankruptcy filings is to obtain a discharge of debts. At the conclusion of a bankruptcy case, the debtor is relieved from his or her personal obligation to pay debts that were included in the bankruptcy case. A discharge in bankruptcy prohibits creditors from ever taking any action against you to collect those debts and permanently prohibits creditors from contacting you regarding the discharged debt.  Your financial slate is literally wiped clean.

When does the discharge occur?

The timing of the bankruptcy discharge will depend on the chapter under which the debtor proceeds. In a Chapter 7 case, for example, the court usually grants the discharge only a few months after the filing of the bankruptcy petition with the bankruptcy court.  The only obstacle to such a rapid discharge is the filing of a complaint by a creditor objecting to the discharge. The filing of such a complaint will initiate what is called an adversary proceeding, which is essentially a civil suit under the jurisdiction of the bankruptcy court in which the debtor’s right to a discharge will be adjudicated. Certain debts, such as debts incurred by fraud, are not dischargeable in bankruptcy and can cause litigation.

In individual Chapter 11 cases, and in cases under Chapter 13 (adjustment of debts of an individual with regular income), the court generally grants the discharge as soon as the debtor completes all payments under the plan. Since a Chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing. Generally, a Chapter 13 debtor must complete their payment plan before debts are discharged. However, in limited circumstances, Chapter 13 debtors may appeal to the bankruptcy court for an early discharge before completion of the plan known as a “hardship discharge.” Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor's control. For example, an individual who files for Chapter 13 bankruptcy may lobby the court for an early discharge after losing his job.

Further, the court may deny an individual debtor's discharge in a Chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management” after filing bankruptcy. The financial management course is separate from the credit counseling requirement which is a pre-filing requirement. However, the Bankruptcy Code does provide limited exceptions to the “financial management” requirement if the U.S. trustee or bankruptcy administrator determines there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone.

Unless a creditor initiates an adversary proceeding in opposition to the discharge, the discharge will take place automatically by order of the bankruptcy court. The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the debtor, the U.S. trustee, the trustee in the case, and the debtor’s attorney. The notice, which is simply a copy of the final order of discharge, informs creditors that the debtor’s obligations to them have been eliminated and that they are prohibited from further contact with the debtor. Creditors who contact debtors after receiving such notice may be held in contempt of court. Any inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge. However, failure to include a creditor in the mailing matrix at the outset of the bankruptcy case will prevent that creditor’s claim from being eliminated through the bankruptcy process. For example, an individual filing for bankruptcy in south Alabama will be unable to discharge an obligation to Alabama Power Company if Alabama Power is not listed on the petition mailing matrix.

What debts are eligible for discharge?

The ability to discharge debts by filing bankruptcy varies depending on the chapter. Section 523(a) of the Bankruptcy Code specifically outlines various types of debts as ineligible for discharge. Congress has determined that public policy should prohibit the discharge of certain debts. For example, the legislature does not want to encourage drunk driving or fraud and therefore will not allow debts incurred through those acts to be discharged in bankruptcy. Debts excluded from discharge by 523(a) are not affected by filing bankruptcy and will still be owed after the discharge of eligible debts.

A Chapter 13 bankruptcy allows more debt to be discharged than a Chapter 7 bankruptcy. Debts dischargeable in a Chapter 13, but not in Chapter 7, include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings.

Does the debtor have the right to a discharge, or can creditors object to the discharge?

A Chapter 7 discharge is never guaranteed. The U.S. Trustee, bankruptcy trustee or a creditor may object to the discharge. For example, a creditor who believes they have been defrauded by a debtor under the parameters set out in section 523(a) of the Bankruptcy Code may file an adversary proceeding contesting the debtor’s right to bankruptcy relief. When a Chapter 7 case is filed, creditors receive a notice that sets forth certain important information, including the deadline for objecting to the discharge.  The court may deny a Chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code, including failure to provide requested tax documents; failure to complete a course on personal financial management; transfer or concealment of property with intent to hinder, delay, or defraud creditors; destruction or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets; violation of a court order or an earlier discharge in an earlier case commenced within certain time frames before the date the petition was filed.

In Chapter 13 bankruptcy cases, the debtor is usually entitled to a discharge upon completion of all payments under the plan.  Unlike Chapter 7, creditors do not have standing to object to the discharge of a Chapter 13 bankruptcy debtor. Creditors wishing to challenge a Chapter 13 filing must do so at the confirmation hearing. Once the plan has been confirmed, the debtor “controls their own discharge destiny.” For example, a debtor who files a Chapter 13 bankruptcy and receives confirmation of their plan will likely receive a discharge assuming they make timely payments and comply with the personal financial management course requirement.
In both Chapter 7 and Chapter 13 bankruptcy cases, debtors will not be entitled to a discharge without completing a personal financial management course. A Chapter 13 debtor is also ineligible for a discharge if he or she received a prior discharge in another case commenced within certain time frames.

Can a debtor receive a second discharge in a later case?

The bankruptcy court will deny a discharge in a later Chapter 7 case if the debtor received a discharge under Chapter 7 or Chapter 11 in a case filed within the previous eight years. The court will also deny a Chapter 7 discharge if the debtor previously received a discharge in a Chapter 12 or Chapter 13 case filed within six years before the date of the filing of the second case unless (1) the debtor paid all “allowed unsecured” claims in the earlier case in full, or (2) the debtor made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims, and the debtor's plan was proposed in good faith, and the payments represented the debtor's best effort. A debtor is ineligible for discharge under Chapter 13 bankruptcy if he or she received a prior discharge in a Chapter 7, 11, or 12 case filed four years before the current case or in a Chapter 13 case filed two years before the current case.

Can the discharge be revoked?

The debtor’s right to a discharge can be revoked. For example, a creditor or the U.S. trustee may request that the court revoke the debtor's discharge in a Chapter 7 case based on allegations that the debtor: committed fraudulent acts; failed to disclose vested rights in property that when acquired would have become part of the bankruptcy estate, or committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code. In most cases, a request to revoke must be filed within one year of the discharge at which time the bankruptcy court will determine the merits of the claim.

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What bankruptcy can not accoplish.
Bankruptcy cannot cure every financial problem.  Nor is it the right step for every individual.  In bankruptcy, it is usually not possible to:

1. Eliminate certain rights of “secured” creditors.  A “secured” creditor has taken a mortgage or other lien on property as collateral for the loan.  Common examples are car loans and home mortgages.  Although a debtor is not personally liable for discharged debts, a valid lien (i.e., mortgage or tax lien) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a mortgage lender can still foreclose on a borrower’s home post-bankruptcy. This may seem counterintuitive, but it is important to remember that bankruptcy eliminates only a debtor’s personal obligation to pay debt. A mortgage is a security instrument, which attaches to collateral, allowing the lender to take property in the event payments are not made on the note. Under the law, it is impossible to separate a note and a mortgage. Therefore, even after a personal discharge of a borrower’s obligation to pay the note, the lender’s security interest in its collateral remains.  However, you can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. 
2. Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.
3. Protect cosigners on your debts.  When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
4. Discharge debts that arise after bankruptcy has been filed.

Debts ineligible for discharge:

The ability to discharge debts by filing bankruptcy varies depending on the chapter under which the case proceeds. Section 523(a) of the Bankruptcy Code specifically excludes various types of debts as ineligible for discharge. Congress has determined that public policy should prohibit the discharge of certain debts. For example, the legislature does not want to encourage drunk driving or fraud and therefore will not allow debts incurred through those acts to be discharged in bankruptcy. Debts excluded from discharge by 523(a) are not affected by filing bankruptcy and will still be owed after the discharge of eligible debts.

There are 19 categories of debt excepted from bankruptcy discharge under Chapters 7, 11, and 12. A more limited list of exceptions applies to cases under Chapter 13 of the Bankruptcy Code.

Certain types of debts, specifically listed under 523(a) of the Bankruptcy Code, are not eliminated by filing bankruptcy regardless if any affirmative action is taken by creditors to prevent discharge. For example, an individual filing for bankruptcy under either Chapter 7 or Chapter 13 will not be permitted to discharge child support obligations regardless of whether the creditor takes any action challenging the bankruptcy. The most common types of nondischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules that the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor's drunk driving, debts owed to certain tax-advantaged retirement plans, and debts for certain condominium or cooperative housing fees.

The types of debts described in sections 523(a)(2), (4) and(6) (obligations affected by fraud or maliciousness) are not automatically excepted from discharge. Creditors must file suit asking the court to determine that these debts are excepted from discharge. In the absence of an affirmative request by the creditor and the granting of the request by the court, the types of debts set out in sections 523(a)(2), (4) and (6) will be discharged.

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Is it hard to file for Bankruptcy?

It is not hard to file for bankruptcy…at least not with the help of an experienced bankruptcy attorney. Although you may file bankruptcy without the help of an attorney, an experienced attorney will assist you in filing the proper papers and help you keep as many of your assets as possible, while at the same time helping you to avoid any possible charges of fraud.

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What must I do before filing Bankruptcy?
You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The entire process can be completed online in an hour. If you decide to file bankruptcy, you must have a certificate from the agency showing that you received the counseling before your bankruptcy case was filed.

If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. And being an “approved” agency for bankruptcy counseling is no guarantee that the agency is good. It is also important to understand that even good agencies won't be able to help you much if you're already too deep in financial trouble.

It is usually a good idea for you to meet with an attorney before you receive the required credit counseling. Unlike a credit counselor, who can not give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions.

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Should I hire an attorney?
In bankruptcy, as in all areas of life, remember that the person advertising the cheapest rate is not necessarily the best. 

Paying for debt counseling is almost never a good idea. There is almost nothing that a paid debt counselor can offer other than a recommendation about whether bankruptcy is appropriate and a list of highly priced debt consolidation lenders.  There is no good reason to pay someone for this service.  A reputable attorney will generally provide counseling on whether bankruptcy is the best option.  This avoids the double charge of having to pay a counselor and then an attorney.  If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. 

Document preparation services also known as “typing services” or “paralegal services” involve non-lawyers who offer to prepare bankruptcy forms for a fee.  Problems with these services often arise because non-lawyers cannot offer advice on difficult bankruptcy cases, and they offer no services once a bankruptcy case has begun. 

When first meeting a bankruptcy attorney, you should be prepared to answer the following questions:

What types of debt are causing you the most trouble? 

What are your significant assets? 

How did your debts arise, and are they secured? 

Is any action about to occur to foreclose or repossess property or to shut off utility service? 

What are your goals in filing the case?
 
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How long will the proceeding last?
A Chapter 7 case begins with the filing of a petition and ends with the closing of the case by the court. If the debtor does not have any nonexempt assets for the trustee to collect, the case will most likely be closed shortly after the debtor receives his or her discharge, which is usually only a few months after the case is filed. If the debtor has nonexempt assets for the trustee to collect, the length of the case will depend on how long it takes the trustee to collect the assets and perform his or her other duties in the case.
A debt consolidation plan generally lasts for three (3) years to five (5) years, unless all debts can be paid off in full in less time. A debt consolidation plan cannot last longer than five (5) years.

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Will I have to go to Court?
Consumer debtors are rarely required to appear in court in most personal bankruptcy proceedings.
A typical Chapter 7 debtor will not generally appear in court and will usually not see the bankruptcy judge unless an objection is raised in the case.

A Chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. In most cases, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.  Creditors very rarely attend the meeting of creditors. This meeting is informally called a “341 meeting” because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.

Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear before a judge at a hearing.  If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.

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Will bankruptcy affect my credit?
A major concern for most people is the extent to which their credit will be affected by filing bankruptcy. Your credit will be adversely affected by filing bankruptcy.  The fact is that your filing will be reflected on your credit report for a period of ten (10) years from the date your petition is filed.  However, it is important to recognize that your underlying financial problems are the real cause of your negative credit - not the bankruptcy. Actually, bankruptcy can be the first step in reestablishing your credit. Bankruptcy will be on your credit report for a period of ten (10) years. However, any negative or bad information currently on your credit report will stay on your credit report for a period of seven (7) years and that time period does not start until you pay off your creditors in full or it is “written off” as a bad debt. As a practical matter, your credit will be affected for a period of at least seven (7) years without doing anything…and perhaps more.  Therefore, bankruptcy may be the first step in reestablishing your credit because it provides a beginning point for you to obtain a fresh start.

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How long will bankruptcy be reflected on my Credit Report?
The results of your bankruptcy case will be part of your credit record for ten (10) years. The ten years are counted from the date you filed your bankruptcy.

While bankruptcy does not reflect positively on your credit score, it is likely that you will still have access to credit after filing. Of course filing for bankruptcy is going to hurt your credit score and could make it harder for you to get a loan in the future. But the effect may not be as bad as you think. Most people who end up filing for bankruptcy already have poor credit scores. And bankruptcy, by wiping out debts, can actually help rebuild your credit score. It's possible for somebody who files a chapter 7 bankruptcy to rebuild their credit scores back up to the high 600s within two years.

Debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not owe anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with the credit reporting agency if this information is not correct.

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Will filing for bankruptcy affect my spouse?
Not necessarily. A husband who files bankruptcy does not implicate his wife and visa versa. Having said that, the spouse who does file will reduce their credit score which will have indirect implications for the non-filing spouse. In many areas of the law, husband and wife are considered a single unit. Bankruptcy law is not one of those areas. Only if a husband and wife file jointly will they both be affected by the bankruptcy. Filing jointly is usually only necessary when the married couple has jointly incurred debt.

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How will Bankruptcy affect my co-signers?
A Chapter 7 discharge releases only the debtor. The liability of any other party on a debt is not affected by a Chapter 7 discharge. A person who wants to protect co-signers should consider his or her options under a Chapter 13 debt consolidation.

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Will I lose my possessions?
You will not lose all of your possessions. One of the basic misconceptions about a Chapter 7 bankruptcy is that you lose all of your assets.  There is an important exception - certain defined “exempt assets.”  Out of all of your assets you are allowed to keep your “exempt assets,” the idea being that you need certain basic items in order to make a successful fresh start after bankruptcy.

Exempt assets are defined by law. Both federal and state law provide numerous exemptions which may allow you to keep your home, car, and personal property. It is important to inventory all of your assets so that you can discuss them with your bankruptcy attorney. Quite often, especially in a family situation, all of your assets will be exempt, which means you lose nothing after filing bankruptcy. If it appears that you may lose some of your assets by filing a Chapter 7 bankruptcy, you should consider your options under a Chapter 13 debt consolidation proceeding.

The filing of a Chapter 13 debt consolidation petition will usually allow you to keep all of your possessions. In a debt consolidation proceeding, creditors are usually paid out of your income and from your property. You are, in fact, repaying your debts. Accordingly, you are usually allowed to keep your property.

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What property can I keep?

In a Chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors. You can choose between your exemptions under your state law or, if your state’s laws allow, under federal law.

In determining whether property is exempt, you must keep a few things in mind.  The value of property is not the amount you paid for it, but what it is worth now.  Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.

You also only need to look at your equity in property.  This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens.  For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it.

While your exemptions allow you to keep property even in a Chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind.  In a Chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law.  In most cases, you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.  

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What will happen to my home and car if I file bankruptcy?

In most cases, you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt.  Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in Chapter 13.

However, some of your creditors may have a “security interest” in your home, automobile or other personal property.  This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt.  Bankruptcy does not make these security interests go away.  If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

There are several ways that you can keep collateral or mortgaged property after you file bankruptcy.  You can agree to keep making your payments on the debt until it is paid in ful, or you can pay the creditor the amount that the property you want to keep is worth.  In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt.  If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.

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Can I own anything after bankruptcy?

Many people believe they cannot own anything for a period of time after filing for bankruptcy.  This is not true.  You can keep your exempt property and anything you obtain after the bankruptcy is filed.  However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.

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Will bankruptcy wipe out all my debts?
Bankruptcy will not normally wipe out:

1. Money owed for child support or alimony, fines, and some taxes;
2. Debts not listed on your bankruptcy petition;
3. Loans you got by knowingly giving false information to a creditor, who reasonably relied on that information in making you the loan;
4. Debts resulting from “willful and malicious” harm;
5. Student loans owed to a school or government body, unless court decides that payment would be an undue hardship;
6. Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor). Further, you can force secured creditors to take payments over time in the bankruptcy process, and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. 

What will happen to my depts?
 A Chapter 7 discharge is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditor not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. Some debts, however, are not dischargeable under Chapter 7, and some persons are not eligible for a chapter 7 discharge.

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Which debts will I still owe after bankruptcy?
When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled, and you are no longer legally obligated to pay them.

However, certain types of debts are NOT discharged in bankruptcy. The following debts are among the debts that generally may not be canceled by bankruptcy:

1. Alimony, maintenance, or support for a spouse or children.
2. Student loans. Almost no student loans are canceled by bankruptcy.
3. Money borrowed by fraud or false pretenses.
4. Most taxes. The vast majority of tax debts can not be discharged.
5. Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.
6. Drunk driving injury claims.

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Will I still owe secured debts after Bankruptcy?
Yes and No. The bankruptcy process treats secured and unsecured debt very differently. Unsecured debt, such as credit card debt, is often totally eliminated. Secured debts, such as home mortgages and car loans, typically remain after bankruptcy. If the debtor wishes to keep the property she must continue to make payments on the loan. The lender’s power to take back collateral secured by the loan survives even bankruptcy.

In some instances, the bankruptcy court has the power to modify secured debts. In general, the treatment of secured creditors hinges on whether they hold an “allowed secured claim.” A secured creditor’s claim will be deemed allowed if the amount of the debt does NOT exceed the value of the collateral. If the secured debt exceeds the value of the collateral the bankruptcy court can “strip off” the portion of the debt that exceeds value and treat it as unsecured, often providing payment of less than 100%. Currently, bankruptcy judges do not have the power to modify mortgages securing the debtor’s primary residence.

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Do I have other options for secured debts?
You may be able to keep the collateral on a secured debt by paying the creditor in a lump sum the amount the item is worth rather than what you owe on the loan. This is your right under the bankruptcy law to “redeem” the collateral. Redeeming collateral can save you hundreds of dollars. Because furniture, appliances, and other household goods go down in value quickly once they are used, you may redeem them for less than their original cost or what you owe on the account.

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Can I include taxes?
Generally, taxes are not avoidable when you go through a straight Chapter 7 bankruptcy. This is true whether it be income tax, employer withholding tax, or social security.  However, because there are some limited technical exceptions, your tax obligations should be closely reviewed with your bankruptcy attorney.

Likewise, although taxes cannot be avoided through a debt consolidation proceeding, they can be repaid over a period not to exceed five (5) years and, often, in a monthly amount the taxpayer can afford, rather than the amount the IRS is demanding. Debt consolidation is the only tax repayment relief available to the tax payer for non-dischargeable taxes other than having the IRS agree to your terms of repayment.

Once debt consolidation is filed, the IRS cannot garnish your wages, seize your bank account, close your business, perfect a tax lien, or take any other collection effort. There are generally two kinds of tax obligations. One is a secured obligation, where the IRS has perfected a tax lien on your property and the other type is unsecured.

If you file a debt consolidation petition and your tax obligation is unsecured, then the tax obligation accrues no further interest or penalty charges. This could amount to a substantial savings over a five (5) year period of repayment. If you have an unmanageable tax obligation, you should act immediately to determine your debt consolidation options and avoid the possibility of having the IRS take collection measures against you or perfect a tax lien, which means you may have to pay interest and penalties on the tax obligation.

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May a debtor choose to pay debts after bankruptcy?
A debtor may choose to repay any debt after filing for bankruptcy. Bankruptcy extinguishes the legal obligation to pay debt. However, personal considerations may counsel in favor of tendering payment.

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What is reaffirmation?
Although you filed bankruptcy to cancel your debts, you have the option to sign a written agreement to reaffirm a debt.  If you choose to reaffirm, you agree to be legally obligated to pay the debt despite bankruptcy. If you reaffirm, the debt is not canceled by bankruptcy. If you fall behind on a reaffirmed debt, you can get collection calls, be sued, and possibly have your pay attached or other property taken.

Reaffirming a debt is a serious matter. You should never agree to a reaffirmation without a very good reason.

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Do I have to reaffirm car loans or home mortgages?
If you are behind on a car loan or a home mortgage and you can afford to catch up, you can reaffirm and possibly keep your car or home. If the lender agrees to give you the time you need to get caught up on a default, this may be a good reason to reaffirm. But if you were having trouble staying current with your payments before bankruptcy and your situation has not improved, reaffirmation may be a mistake. The collateral is likely to be repossessed or foreclosed after a Chapter 7 case anyway, because your obligation to make payments continues. If you have reaffirmed, you could then be required to pay the difference between what the collateral is sold for and what you owe.

If you are up to date on your loan, you may not need to reaffirm to keep your car or home. Some, lenders will let you keep your property without signing a reaffirmation as long as you continue to make your payments. Sometimes lenders will do so if they think the bankruptcy court will not approve the reaffirmation agreement.

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Can I reaffirm credit cards or department store cards?
It is almost never a good idea to reaffirm a credit card. Reaffirming means you will be obligated to pay bills that your bankruptcy would normally wipe out. That can be a very high price to pay for the convenience of a credit card. Remember, it is likely that credit card companies will offer you lines of credit even after filing bankruptcy. Another alternative is to try paying cash.
If you do reaffirm, try to get something in return, like a lower balance, no interest on the balance, or a reasonable interest rate on any new credit.

Some department store credit cards may be secured. The things you buy with the credit card may be collateral. The store might tell you that they will repossess what you bought if you do not reaffirm the debt. Most of the time, stores will not repossess used merchandise. Therefore, after a Chapter 7 bankruptcy, it is much less likely that a department store would repossess “collateral” than a car lender.

However, repossession is possible. You have to decide how important the item is to you or your family. If you can replace it cheaply or live without it, then you should not reaffirm. You can still shop at the store by paying cash, and the store may offer you a new credit card even if you don't reaffirm (just make sure that your old balance is not added into the new account).

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Do I have to reaffirm any debts?
Reaffirmation is always optional. It is not required by bankruptcy law or any other law. If a creditor tries to pressure you to reaffirm, remember you can always say "no!"

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Do I have to reaffirm on the same terms?
No. A reaffirmation is a new contract between you and the lender. You should try to get the creditor to agree to better terms such as a lower monthly payment or interest rate. You can also try to negotiate a reduction in the amount you owe.   Further, the lender must give you disclosures on the reaffirmation agreement about the original credit terms, and any new terms you and the lender agree on must also be listed.

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Should I reaffirm?
If you are thinking about reaffirming, the first question should always be whether you can afford the monthly payments. Reaffirming any debt means that you are agreeing to make the payments every month, and to face the consequences if you don't. If you have any doubts whether you can afford the payments, do not reaffirm. Caution is always a good idea when you are giving up your right to have a debt canceled. Before reaffirming, always consider your other options.

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Can I change my mind after I reaffirm a debt?
You can cancel any re-affirmation agreement within sixty days after it is filed with the court. You can also cancel at any time before your discharge order. To cancel a reaffirmation agreement, you must notify the creditor in writing. You do not have to give a reason. Once you have canceled, the creditor must return any payments you made on the agreement.

Also, remember that a reaffirmation agreement has to be in writing, has to be signed by your lawyer or approved by the judge, and has to be made before your bankruptcy is over. Any other reaffirmation agreement is not valid.

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How will lawsuits be affected?
The filing of a bankruptcy prevents any lawsuits from being filed or judgments being entered against you. If you file bankruptcy when there is a lawsuit against you, it can go no further. If a judgment has been entered, its enforcement can go no further without permission from the bankruptcy court.

If there are potential lawsuits against you, often the bankruptcy court offers a forum where the dispute can be rapidly settled--thus avoiding the time and expense of litigating the matter in state court.

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Does a person lose any legal or civil rights?
Filing bankruptcy is not a criminal proceeding, and a person does not lose any civil or constitutional rights by filing.

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Are employers notified?
Employers are not usually notified when a bankruptcy case is filed. However, the trustee in a bankruptcy case may contact an employer seeking information as to the status of the debtor's wages or salary at the time the case was filed. If you have compelling reasons for not informing an employer in a particular case, you should review these reasons with your bankruptcy attorney because your attorney may be able to work with the trustee to make other arrangements to obtain the necessary information.

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May employers discriminate against me for filing bankruptcy?
It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed bankruptcy. It is also illegal for local, state, or federal governmental units to discriminate against a person as to the granting of licenses, permits, or similar grants because that person has filed bankruptcy. It is also illegal for governmental student loan or grant unit to deny a student loan or grant solely on the basis of filing.

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May utilities discrimitate against me for filing bankruptcy?
If, within twenty (20) days after a Chapter 7 case is filed, the debtor furnishes a utility company with a deposit or other security to insure the payment of future utility services, it is illegal for that utility company to refuse to provide future utility services to the debtor, or to otherwise discriminate against the debtor, even if the bill for past utility services is discharged in a Chapter 7 case.

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Can my creditors continue to harass me?
Once you have filed bankruptcy, the Bankruptcy Court issues an Automatic Stay.  That means no more phone calls, no more collection letters, no more lawsuits, no repossessions and no foreclosures! The Automatic Stay prohibits your creditors from taking any collection actions against your or your assets. After you file bankruptcy, the creditor is not even allowed to talk to you. In addition, the creditor must stop any collection attempts already started. The Automatic Stay puts the full weight of the United States Courts to work for you!  If a creditor violates the Automatic Stay , you have the right to bring the creditor before the Court for Contempt of Court, and to be compensated accordingly. Simply put, once you file for bankruptcy, creditors must leave you alone.

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What can a debtor do if a creditor attempts to collect a discharged debt after the case is concluded?
Once a debt has been discharged through bankruptcy, creditors are prohibited from taking collections action. If a creditor attempts to enforce a debt properly discharged through bankruptcy, the debtor’s attorney may petition the court to re-open the case. The bankruptcy court will often do so to ensure that the discharge is not violated. The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a collections lawsuit. A creditor who attempts to enforce a discharged debt can be held in contempt of court and will be punished with fines and sanctions.

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Can I file Chapter 7 in order to stop a repossession or foreclosure?
If you are considering filing bankruptcy in order to save your home from foreclosure or avoid repossession of a car, Chapter 7 may not be your best option. This is because Chapter 7 bankruptcy does not eliminate the right of banks or car loan creditors to foreclose on your home or property to cover your debt.  If you want to stop a repossession or foreclosure, you should consider your options under a Chapter 13 debt consolidation.

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Can I file Chapter 13 in order to stop a repossession or foreclosure?
When you get behind on your house payments, your creditor, perhaps a mortgage company, savings and loan bank, credit union or even an individual, may foreclose on your property. The number of months you are behind may vary, but at some point the creditor may refuse monthly payments unless you pay all of the arrearages. If you cannot, the entire amount owed on the note may be accelerated and the full amount will be due at once, and your home posted for foreclosure. You should receive proper notice of the foreclosure at least three (3) weeks prior to the actual sale of your home.

At foreclosure, the property is sold to the highest bidder, usually the creditor itself. If your mortgage is guaranteed, such as a VA or FHA loan, the creditor will be paid off.

The creditor, or its guarantor, will then sell the home and apply the proceeds against the costs of foreclosure, fix-up, resale and the balance of your mortgage. If the proceeds of this sale are equal to or more than this amount, you will have no further liability. However, if the proceeds of this sale are less than this amount there is a resulting deficiency. You are obligated to pay this deficiency and, like any other debt, the creditor can pursue whatever collection action it deems appropriate.

The filing of a debt consolidation petition prior to the actual sale of your home may give you the opportunity to stop the foreclosure, keep your home and pay the arrearages over a reasonable period of time while continuing to make future mortgage payments. The mortgage holder can only continue with the foreclosure if it receives permission from the Court. In most instances, the Court will not allow the foreclosure to proceed if you are capable of making your current mortgage payments and catching up what you are behind within a reasonable period of time.

If your mortgage payments are behind, you should immediately determine your debt consolidation options. Quick action can possibly avoid the foreclosure altogether allowing you to keep your home and avoid expensive additional costs and fees.

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What is the Automatic Stay?
Sometimes, the most valuable feature of a debt consolidation proceeding is the Automatic Stay gained instantaneously upon the filing of a petition. When a person gets behind in paying his debts, creditors begin to take various actions to collect, including:

1. Telephone calls at home, at work, to family, to neighbors or friends.
2. Personal contact by bill collectors creating embarrassment in front of family, friends, fellow employees or your employer.
3. Co-signers may be called upon to make payment.
4. Foreclosure proceedings may be started against your home.
5. Automobiles, furniture, jewelry, appliances or other personal items may be repossessed.
6. If you owe the IRS or other taxing authorities, they may garnish your wages, put a lien on almost all of your property, seize your bank account, or even close your business.
7. Lawsuits can be filed and judgments taken against you.

The filing of a debt consolidation petition automatically stops a creditor from further collection efforts. No more phone calls, letters, bill collectors, foreclosures, repossessions, demands on co-signers in some instances, garnishments or seizures by the IRS, lawsuits or judgments; all collection efforts stop until the creditor files a request with the court for permission to continue collections. Beyond all this, the Automatic Stay affords an opportunity for the debtor to have a breathing spell, a chance to sort things out, and additional time is gained to resolve his or her financial situation.

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How does Chapter 13 differ from a private debt consolidation service?
Under Chapter 13, the court has powers to aid you that private debt consolidation services do not have. For example, the court has the power to prohibit creditors from attaching or foreclosing on your property, the power to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, and the power to discharge a debtor from the unpaid portion of debts. Private debt consolidation services have none of these powers.

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Must all debts be paid in full through Chapter 13?
Not all debts must be paid in full in a debt consolidation proceeding. While certain debts, such as tax debts and fully secured debts, must be paid in full under a Chapter 13 plan, only an amount that you can reasonably afford must be paid on most otherdebts. The unpaid balance of most debts that are not paid in full under a Chapter 13 plan is discharged upon completion of the plan.

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What if I cannot complete my debt consolidation payments?
A debtor who is unable to complete his or her debt consolidation payments has three (3) options:

1. Dismiss the debt consolidation proceeding, or
2. Convert the debt consolidating to Chapter 7 straight bankruptcy, or
3. If the debtor is unable to complete the payments due to circumstances for which he or she cannot be held accountable, close the case and obtain a second type of discharge offered in debt consolidation proceedings which gets rid of some but not all of your debts.

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 Is it true that under the new Bankruptcy Law there is no more bankruptcy?
No.  You can still do just about everything under the new laws that you could do under the old laws. Most people seeking bankruptcy will not notice any difference. There is more paperwork involved, higher filing fees and more steps involved with the new laws. But in some ways, the new laws have actually increased the benefits of filing bankruptcy. Just like with the old laws, bankruptcy is not something you should try to do by yourself. Working with a good bankruptcy attorney is always recommended.

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Will everyone know that I have filed bankruptcy?
Unless you're a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors. Bankruptcy is public record; however, because so many bankruptcies are filed each month, few publications have the space, the manpower, or the inclination to run all of them. In all likelihood, the chances of people knowing you have filed for bankruptcy is pretty slim.

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Can I file for bankruptcy more than once?
You can only file for a Chapter 7 bankruptcy once every 8 years. After 8 years, if need be, you can file a Chapter 7 again. As for filing a case under Chapter 13 of the Bankruptcy Code, there are no such restrictions.

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Is there a minimum amount of debt required to file for bankruptcy?
If you really wanted, you could file even if you only had a few hundred dollars in debt. To some people with higher incomes, a small amount isn't worth filing bankruptcy; however, for some people with little to no income at all, there is no choice. Speaking to an experienced bankruptcy attorney who can help you decide is a good place to start.

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Is Bankruptcy is immoral?
What the Bible and the United States Constitution have to say about bankruptcy is outlined below.

People are generally expected to pay their debts (Leviticus 25:39). However, many studies have shown that the average American family is only three weeks away from personal bankruptcy. Should our reaction to this statistic be one of condemnation or one of compassion?

Our founding fathers recognized the importance of bankruptcy. Specifically, Article I, Section 8, of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies.” Under this grant of authority, Congress enacted the “Bankruptcy Code” in 1978. The bankruptcy laws and procedures we have today provide relief and give people who are over-their-head in debt a fresh start.

However, long before the adoption of our Constitution, the origins of bankruptcy were firmly rooted in early Judeo-Christian societies. The foundations of today’s bankruptcy laws can be found in the “Sabbatical Year” and “Jubilee Year” and the forgiveness of debts found in Leviticus 22, Deuteronomy 15 and other parts of the Bible. In fact, the cancellation of debt in the Old Testament happened automatically every few years – without the need for any formal process. “At the end of every seven years you shall grant a release. And this is the manner of the release: every creditor shall release what he has lent to his neighbor, his brother, because the Lord’s release has been proclaimed.” Deuteronomy 15:1-2. Further, early Judeo-Christian societies viewed debt as a form of bondage or slavery (Proverbs 22:7). In order to free the slave from his bondage, Jewish Law stated that at the end of the sixth year “in the seventh year you shall let [your Hebrew slave] go free from you. And when you send him away free from you, you shall not let him go away empty-handed; but you shall supply him liberally from your flock...” Deuteronomy 15:12-14. Likewise, modern bankruptcy laws provide today’s debtors with the opportunity to gain a fresh start and even allows the debtor to keep certain property to help him avoid falling back into debt that he cannot manage (“you shall not let him go away empty-handed; but you shall supply him liberally from your flock…”). Further, Jesus used the illustration of forgiveness of a financial debt to teach about God's forgiveness and the requirement that mankind forgive (Matthew 18:21-35 and Luke 7:36-50). “And when they had nothing with which to repay, he freely forgave them both” (Luke 7:42). Finally, in the Lord’s Prayer, the disciples are taught to ask God to “forgive us our debts, as we also have forgiven our debtors” (Matthew 6:12).

It should also be noted that a guiding principle of today’s bankruptcy law is that a person who files for bankruptcy must have “clean hands.” Therefore, a debtor cannot avoid the payment of all types of debt. For example, a debtor may not be freed from debts involving fraud, drunk driving or deliberate wrongdoing nor can child support or alimony be avoided through bankruptcy.

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What else should I know?
Utility services
Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy.  However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.

Discrimination
An employer or government agency cannot discriminate against you because you have filed for bankruptcy.

Driver’s License
If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.

Co-signers
If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt. If you file a Chapter 13, you may be able to protect co-signers, depending upon the terms of your Chapter 13 plan.

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