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Q: What can filing bankruptcy do for me
A: Filing either a Chapter 7 bankruptcy or Chapter 13 bankruptcy will stop your creditors from taking legal action against you without first obtaining the bankruptcy court’s permission. The filing of bankruptcy can stop foreclosures, repossessions, wage garnishments (with some exceptions), lawsuits, etc. Bankruptcy creates an automatic stay.
Q: What is the Automatic Stay?
A: When your bankruptcy is filed with the court, an automatic stay immediately goes into force, regardless of the type of bankruptcy filed. This means your creditors cannot proceed with foreclosure, repossession or any other legal actions against you unless they obtain permission from the bankruptcy court. Child support and alimony payments are usually the exception to the automatic stay. The automatic stay also does not apply to criminal charges against a debtor. Additional details regarding the automatic stay can be found under Title 11, Section 362 of the US Bankruptcy Code.
Q: What are the exceptions to the automatic stay?
A: The bankruptcy automatic stay does have limitations based on Title 11, Section 362. Some of the limitations include:
- Commencement or continuation of criminal actions or proceedings
- Establishment or modification of domestic support obligations (Child support, alimony)
- Collection of and withholding of income for domestic support obligations
- Tax refunds
- Repeat filers
- Two cases pending in 1-year period after first case was dismissed, automatic stay limited to 30 days but can be extended
- Three cases pending in a 1-year period after first two cases were dismissed, no automatic stay but can be imposed with court order
Q:How will bankruptcy affect my credit?
A: You should first understand the difference between your credit score and your ability to obtain credit. Often, these words are used interchangeably and confusion can occur. Your credit score is the number the credit reporting agencies assign to your credit. It is based on your history of making payments on your debts. Your ability to obtain credit is based on your ability to make payments in the future and is determined by your income and your debts. If your debts exceed your ability to make payments, you may be unable to obtain credit even if you have consistently paid your debts on a timely basis. In other words, you may have a good credit score yet be unable to purchase a car because you have too much debt. Filing bankruptcy will most likely reduce your credit score in the short-term. However, filing bankruptcy also eliminates many of your debts and may improve your ability to obtain credit in the future.
Q: How will bankruptcy affect my spouse?
A: Assuming only one spouse files bankruptcy, the impact on the non-filing spouse will depend if there are joint debts. If your spouse has cosigned on a debt, such as a house or car, he/she is still responsible for payment of the debt and the bankruptcy will not discharge or eliminate your spouse’s responsibility. This is also true for credit cards, personal loans, and any other debts your spouse has joint responsibility for. It is also important to understand that you and your spouse are jointly responsible for medical debts if you live in North Carolina and were married when the debts were incurred. As a result, medical debts discharged in bankruptcy will still be the responsibility of the non-filing spouse. You are also responsible for your spouse’s medical debts and any other debts you have cosigned with your spouse.
Q: What if someone has cosigned on my debt?
A: Generally speaking, if someone cosigned a debt with you, and that debt is discharged or wiped out in the bankruptcy, the person who cosigned with you will be responsible for that debt.
Q: What are the other options to bankruptcy?
A:The answer to this question depends on the reason you are considering bankruptcy. If you are trying to avoid foreclosure on your home, you may be able to refinance the property or work out a loan modification with your existing mortgage company. If you are not interested in keeping the house, you could consider selling the property or even signing a deed in lieu of foreclosure with the mortgage company. However, you should be aware there may be tax implications or you may even increase your debt with these options. You should definitely seek tax and legal advice when you consider these options.
If most of your debts are unsecured including most credit cards, personal loans, etc. you may want to consider a debt consolidation. You should be extremely careful when considering a debt consolidation company, since some, but obviously not all, have been found to prey on individuals in desperate situations. These are often short-term solutions to a problem that ultimately leads to the filing of bankruptcy. Unfortunately, that decision is often reached after you have paid a considerable amount of money to the debt consolidation company and your credit score has decreased because debts are still not paid on a timely basis.
Some people also consider equity lines of credit on their home to payoff credit cards and medical bills. This can be extremely risky since you have now attached another lien to your home that ultimately gives another company the ability to foreclose on your home should you get behind on the line of credit payments.
Q: Can anyone prepare the bankruptcy for me?
A: There are bankruptcy petition preparers that will type the paperwork for a fee; however, they are unable to provide legal advice. This means they cannot answer many of the questions you may have regarding your property. A bankruptcy preparer cannot appear at the meeting of creditors with you to answer questions or appear in court with you. Unfortunately, some preparers have little training and individuals have lost property including homes, cars and cash because they did not have the proper legal advice.
Q: Am I required to have an attorney to file bankruptcy?
A: You are not required to have an attorney to file bankruptcy. Some individuals have obtained the bankruptcy forms, completed the forms and filed the paperwork themselves, also known as pro se. However, you should determine if it is worth the risk of losing your property because the forms were not completed properly or the appropriate law was not used to protect your home, car and other assets? It is not uncommon to see an individual who filed pro se or with a bankruptcy preparer seek the advice of an attorney after the meeting of creditors or after an appearance in court in front of the judge. Filing bankruptcy is not a simple process. Even attorneys with considerable experience in other areas of law will not attempt to respond to bankruptcy questions from friends and family, since it requires someone with considerable knowledge and experience.
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