Fresh Start Legal Group - WISCONSIN / MICHIGAN / ILLINOIS

Chapter 7 / Chapter 13 / Chapter 128 / Q&A

Selecting the appropriate way to handle your debts is an important first step in your journey to your Fresh Start. At every free initial consultation, a Fresh Start Legal Group attorney will listen to your wishes and assist you in choosing the most appropriate and effective form of debt relief to suit your needs.

Chapter 7

The simplest form of bankruptcy, a Chapter 7 allows you to permanently eliminate debts, such as credit cards and medical bills, while often allowing you to retain most if not all of your personal property. This is the most common form of debt relief.

Chapter 13

A Chapter 13 is a unique tool to re-organize and catch up on important bills that may have fallen behind, such as a house payment. Fresh Start Legal Group will work with you to help design a budget that allows you to catch up and keep the property that you want, while still permanently eliminating a large portion of your unsecured debts.

Chapter 128 ( Wisconsin Residents Only )

A Chapter 128 is not a bankruptcy, but rather a state law available only to Wisconsin residents. Known as a personal amortization, Chapter 128 takes the terms of debt repayment or negotiation out of the hands of the creditor and empowers you to pay down your debts on your terms without hefty fees and interest. Chapter 128 is especially effective in dealing with payday or cash advance loans, often drastically slashing monthly or bi-weekly payments.

Questions & Answers

What Is Bankruptcy?
Bankruptcy is a legal proceeding in which a person who can not pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. 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.

What Can Bankruptcy Do for Me?
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.

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

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. 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. Nevertheless, you generally can not keep the collateral unless you continue to pay the debt.
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.
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.
Discharge debts that arise after bankruptcy has been filed.

What Different Types of Bankruptcy Cases Should I Consider?
There are four types of bankruptcy cases 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 and fishermen.
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.

If your income is above the median income for a family the size of your household in your state, you may have to file a chapter 13 case (the median family income for a family of 4 as of April 2007 was approximately $73,359). A higher-income consumer must fill out “means test” forms requiring detailed information about income and expenses. If, under standards in the law, the consumer is found to have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that the consumer can not file a chapter 7 case, unless there are special extenuating circumstances.

What Does It Cost to File for Bankruptcy?
It now costs $299 to file for bankruptcy under chapter 7 and $274 to file for bankruptcy under chapter 13, whether for one person or a married couple

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 agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you will need to file with the bankruptcy forms in your case a certificate from the agency stating that you received the counseling.

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.

Some of the approved agencies offer debt management plans (also called DMPs). This is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. It is important to keep in mind these important points:

Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you
If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case)
There are approved agencies for bankruptcy counseling that do not offer debt management plans

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. The attorney can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at http://www.usdoj.gov/ust/

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 under federal law. In many cases, the federal exemptions are better.

Federal exemptions include:

$20,200 in equity in your home;
$3225 in equity in your car;
$525 per item in any household goods up to a total of $10,775;
$1850 in things you need for your job (tools, books, etc.);
$1075 in any property, plus the unused exemption in your home, up to $10125;
Your right to receive certain benefits such as social security, unemployment compensation, veteran’s benefits, public assistance, and pensions--regardless of the amount;

(The amounts of the exemptions are doubled when a married couple files together.)

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.

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 full. 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.

Can I Own Anything After Bankruptcy?
Yes! Many people believe they can not 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.

Will Bankruptcy Wipe Out All My Debts?
Yes, with some exceptions. Bankruptcy will not normally wipe out:

money owed for child support or alimony, fines, and some taxes;
debts not listed on your bankruptcy petition;
loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
debts resulting from “willful and malicious” harm;
most student loans, except if the court decides that payment would be an undue hardship;
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);

Will I Have to Go to Court?
In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors” to meet with the bankruptcy trustee and any creditor who chooses to come. 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.

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 our office.

What Else Must I Do to Complete My Case?
After your case is filed, you must complete an approved course in personal finances. This course will take approximately two hours to complete. We will provide you with a list of organizations that provide approved courses, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust.

You should sign up for the course soon after your case is filed. Once you have completed the course you will receive a certificate of completion. This certificate must be received by our office within 30 days following your meeting of creditors. You will not be granted a discharge of your debts unless we file the certificate of completion in a timely manner with the Court.

Will Bankruptcy Affect My Credit?
There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse.

The fact that you’ve filed a bankruptcy can appear on your credit record for ten years. But because bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.

We recommend you pull a copy of your credit report from each of the three credit bureaus approximately two (2) months following receipt of your discharge in bankruptcy. You should carefully check these reports to see that all of your debts are listed correctly. If not, there is a procedure to correct the error. Rebuilding your credit is your responsibility and more information regarding credit repair and reporting violations can be found on the Federal Trade Commission’s website at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm.

My friend went through bankruptcy but he told me something different.
You have probably already received or will receive advice on what to do from well-meaning friends and relatives who have themselves experienced financial problems. Just like no two people are alike, no two bankruptcies are alike. Take the advice of your well-meaning friends and acquaintances with the proverbial "grain of salt." If you have a specific question about anything related to your bankruptcy, make it your rule to ask your attorney, and he or she will try to provide you with an answer that applies to your special situation.

May I repay some of my creditors and not others under the bankruptcy?
You cannot selectively "pick and choose" some particular creditors and decide to pay them outside of your bankruptcy proceedings. All of your debts must be dealt with through the Court. Any payments which you make to a creditor must be paid under the authority of the Court, by the terms of the law, and not by any personal desires. If you want to pay creditors, you must do so through a Chapter 13 plan.

Are student loan debts dischargeable?
Most student loans are not discharged in bankruptcy. You should refer more specific questions to your attorney.

Will my employer find out about my bankruptcy?
The Bankruptcy Court does not contact your employer when your case is filed. Your payroll department may be contacted to stop garnishment, but most times they are told to stop without a reason why. Though anyone may be able to go to the courthouse and find out if you've filed for bankruptcy, this rarely happens.

Who is the United States Trustee and what is its function?
The Office of the U.S. Trustee is an Executive Branch agency that is part of the Department of Justice. The U.S. Trustee is responsible for appointing trustees to administer bankruptcy cases and setting the First Meeting of Creditors (§341 Meetings) dates and times. The staff also monitors the bankruptcy cases to see if bankruptcy fraud has occurred. They are prohibited from providing legal advice. In all chapter 7, 12, 13 and in some chapter 11 cases, a case trustee is assigned by the court to administer the bankruptcy proceedings.