Under the US Bankruptcy Code, there are several Chapters in which that you can file under. For the consumer, those choices are either a Chapter 7 or Chapter 13 case. A Chapter 7 is what is called a straight liquidation case. This means that all unsecured debts are discharged (you do not have to pay the debt). Chapter 7 cases are usually much quicker and less expensive than a Chapter 13 case. Chapter 13 cases are filed when you can not or decide not to file a Chapter 7 case for one of several reasons. In Chapter 13 cases, you take a portion of your debt, say 10-15%, and pay that off over a five year period.
In your bankruptcy you must list all of your debts. You cannot pick and choose which credit cards will be listed in the bankruptcy. Whether the creditor keeps you as a client after you file for bankruptcy is their decision. Generally most credit cards companies will close your account. If there are secured creditors that you want to keep, ie your car, your house, etc, you will be able to complete a Reaffirmation Agreement that will allow this to happen.
A bankruptcy filing can legally stay on your credit report for 10 years for a Chapter 7 case. For a Chapter 13 case, credit bureaus will generally remove the bankruptcy from your credit report after 7 years. Having a bankruptcy filing on your credit report does not mean that you will have bad credit for 7 to 10 years. Most people who file for bankruptcy are able to improve their credit score quickly and continue to improve it over 2-3 years. You will also be drowning in credit card applications that you will receive in the mail upon filing. The credit card companies purchase your contact information from the courts after you file. They then send you credit card applications knowing that you just discharged a lot of past credit debt.
Debts that are in the nature of child support and alimony, and recent taxes debts are non dischargeable debts. Other debts that fall within the category of non dischargeable debts involve drunk driving judgments and debts involving fraud and embezzlement.
Every situation is different, but generally if you fail to make payments on your debts then the creditor may seek several options to obtain the money. A creditor can file a lawsuit in court to obtain payment of the debt. Once the creditor obtains a judgment from the court, then they can seek to collect the debt through wage garnishment (in which they can take 25% of your employee wages each week or 100% of the money you are owed if you are an independent (1099) contractor), levying bank account (freeze a bank account and obtain payment from the money deposited in the account. If this happens you will have no access to your account or the money in it!), or place a lien on your property. The time frame in which the creditor will take action varies. Some creditors are more aggressive and take legal action faster while other creditors do not take legal action.
In most cases the only time you will have to go to court is for the meeting of creditors. At this hearing a trustee, which is appointed by the court, will ask you questions about the information on your petition. The trustee is in charge of overseeing your case, but is not a judge. The meeting of creditors is generally very quick and routine. I will be present with you at the 341 meeting of creditors.
At the Meeting of Creditors, you will be placed under oath and asked a series of questions. The process is low key. It is tape recorded by the Trustee. The purpose of the meeting is to discover any non-exempt assets. It generally lasts about 10 minutes. The Trustee is not there to trip you up or to have a “Perry Mason” moment in which you confess all of your signs. The Trustee is there to ask you questions about the petition and your assets. The first thing most client say after the hearing is, “Was that it?!”. “I lost sleep over that?!”.
The only way that you can stop a lawsuit or a garnishment, of either your paycheck or your bank account, is to file a bankruptcy case. The minute you do a bankruptcy can stop a foreclosure, garnishment or lawsuit immediately! Call us for details.