Bankruptcy

What is bankruptcy?

"Bankruptcy" refers to the federal law that permits certain entities to obtain permanent relief from many debts and obligations.  The intent of the bankruptcy law is to enable debtors to get a "fresh start" in their financial affairs. The bankruptcy law underwent a major revision in 1978, making it easier and more beneficial for debtors to take advantage of the "fresh start" opportunity.  Once a bankruptcy has been concluded, the debtor is discharged from many debts, meaning the debtor is no longer legally obligated to pay those dischargeable debts. 

What happens if I file a chapter 7 bankruptcy? 

A chapter 7 bankruptcy proceeding is commenced by filing a petition with the bankruptcy court. The person filing a Chapter 7 is referred to as the "debtor." The debtor is required to disclose to the court all of its property and debts and turn over all nonexempt property to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor then receives a discharge of all dischargeable debts.  

Who can file a Chapter 7 bankruptcy petition? 

Almost any individual, partnership, or corporation may file a chapter 7 bankruptcy petition if he or she resides, has a domicile, a place of business, or property in the United States. If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition. 

If you were granted or denied a chapter 7 discharge in a prior case within the last 6 years or completed a chapter 13 plan in a prior case, you might not be entitled to receive a discharge in bankruptcy and probably are not a candidate for a chapter 7 bankruptcy proceeding. This rule does have some exceptions. 

Who can file a chapter 13 bankruptcy petition? 

Individuals may file chapter 13 bankruptcy petitions if they: 

(1) reside, have a domicile, a place of business, or property in the United States; 

(2) have a source of regular income; and 

(3) on the date the petition is filed owe less than $269,250 in non-contingent, liquidated, unsecured debts and less than $807,750 in non-contingent, liquidated, secured debts. 

Corporations and partnerships may not file a chapter 13 bankruptcy petition. 

If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition. 

Will the bankruptcy stop creditors from calling? 

Yes. The automatic stay prevents creditors from taking any action to collect debts.  

How long after filing will the creditors stop calling? 

Once a creditor becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts. After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the bankruptcy petition, and supply them with your case number. In urgent cases, we will contact the creditor immediately upon filing the bankruptcy petition, especially if a lawsuit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy it may be liable for court sanctions and attorney fees for this conduct.   

Who notifies the creditors? 

After the bankruptcy petition is filed, the court mails a notice to all the creditors listed in the schedules. This usually takes a couple of weeks.  

Who deals with my creditors during the bankruptcy? 

We will deal with your creditors once we undertake your representation.  

Will my employer or landlord find out about my bankruptcy? 

Bankruptcy petitions are public records. However, under normal circumstances, unless your employer or landlord is a creditor, it will not know you filed a bankruptcy petition. If your employer or landlord is a creditor it must be listed as a creditor on the schedules and will receive notice of the bankruptcy proceeding. 

Can my employer fire me for filing bankruptcy? 

No. The law prohibits government units and private employers from discriminating against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt.   

Can I go to jail if I file bankruptcy or don't pay my debts? 

No. There are no debtor's prisons in the United States.  

Does the spouse of a married person also have to file bankruptcy? 

No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable, it might be advisable to have only one spouse file.  

Can I keep any credit cards? 

Under some circumstances you may be able to keep some credit cards if the creditor agrees. There are many factors which must be considered, including the credit card balance at the time of the bankruptcy, what terms the credit card company is willing to accept and your ability to pay the present and future credit card debt.   

Will I have to fill out forms? 

Filing bankruptcy means filling out forms. We will ask you to fill out forms to provide us with the information needed to prepare the bankruptcy petition. We will use the information you provide to complete the official forms, using a specialized computer program that complies with all the Court's requirements.  

Will I be required to go to court? 

About 30 to 40 days after filing the bankruptcy petition, you will have to attend a hearing presided over by a bankruptcy trustee. This hearing is called the First Meeting of Creditors. The trustee is not a judge, but an individual appointed by the United States Trustee to oversee bankruptcy cases. At the First Meeting of Creditors the trustee will ask you questions under oath regarding the content of your bankruptcy papers, your assets, debts and other matters. Creditors will also be permitted to ask you questions, although in the majority of cases creditors do not ask questions at the First Meeting of Creditors. If we are retained to represent you, one of our attorneys will appear at the First Meeting of Creditors with you. 

After the initial meeting you normally do not need to return to court. However, if a creditor or the trustee files a motion or an adversary action, you may have to appear in court.  

Are there alternatives to bankruptcy? 

Yes. Sometimes payment plans can be negotiated with creditors. Obtaining loan extensions, compromises and workout agreements require negotiation skills and experience. These alternatives may alert your creditors to the existence of nonexempt property that the creditor could reach and can involve considerable expense. You also have the option of doing nothing. In any event you should seek professional advise in dealing with most of these alternatives.  
You may call Conusmer Credit Counselling Service, Inc. at 1-800-873-2227 in Texas.

What should I do to prepare for filing bankruptcy? 

First, you should consult with an attorney. An attorney can help you plan for the bankruptcy, decide when to file a bankruptcy petition, or even avoid filing for bankruptcy. A few specific items are worth mentioning. 

1. If you intend to file bankruptcy you should stop using your credit cards. If you borrow money with the specific intent of discharging the debt in bankruptcy instead of paying it back, the debt is not dischargeable. In addition, (a) certain luxury purchases over $1,075 within 60 days of the bankruptcy filing are presumed non-dischargeable; (b) cash advances aggregating $1,075 taken within 60 days of the bankruptcy filing are presumed non-dischargeable; and, (c) debts involving materially false financial statements are non-dischargeable under certain circumstances. 

2. Don't transfer your assets to friends, family and business associates to protect the assets from your creditors. The transfer may be considered a fraudulent conveyance. If it is, you may lose both the property and your right to a bankruptcy discharge. 

3. Don't destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result. 

4. Carefully choose the creditors you pay. Some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away. We can advise you on what debts should and should not be paid while you prepare to file a bankruptcy petition.   

Can I file a bankruptcy for my debts, but not include my assets? 

No.  

Can I file bankruptcy to delay a creditor? 

The Rules of Bankruptcy Procedure require you or your attorney to certify that your petition is not filed "for any improper purpose, such as to harass or to cause unnecessary delay." Bankruptcy is intended as a tool for dealing with debts that can not otherwise be paid. You should not file a bankruptcy petition for the sole reason of delaying a creditor's actions.   

Do I have to disclose all of my assets? 

Yes. If you knowingly and fraudulently conceal an asset from the court you have committed a felony and can be fined up to $5,000, imprisoned for up to five years, or both. In addition, the court can deny you your discharge, or dismiss or convert your bankruptcy proceeding.