Is bankruptcy right for you?  What is bankruptcy?  Can I keep my car/house/personal possessions?  Will I ever get credit again?

Filing bankruptcy is a big step.  You need to talk to someone who understands bankruptcy from both sides, from your perspective and from the bank’s. Ryan E. Simpson understands both sides of bankruptcy.

What you need to know about bankruptcy

How do I know if I should file?  Filing bankruptcy is a personal decision.  An attorney can tell you what will happen in most cases, but only you can decide whether it’s right for you.  What’s right for another person is not necessarily right for you.  Here are some factors that might help you decide.

• Is your debt, excluding cars and home, more than your annual income?
• Are you being threatened with collection action, including lawsuits, or do you already have lawsuits pending or even judgments?
• Have you stopped opening your mail?
• Have you stopped answering the telephone?
• Are you borrowing money each month to meet living expenses?  For example, are you using credit cards for food, clothing and other everyday expenses and not paying those new charges each month?
• Is your debt steadily increasing?
• Is your financial situation interfering with your enjoyment of life?  Is it causing you to lose sleep or even consider divorce?

What type of bankruptcy is best?

For consumers, there are two main types of bankruptcy, Chapter 7, also called “straight bankruptcy” or “liquidation” and Chapter 13, sometimes called a “wage earner plan” or “debt restructuring.”  In Chapter 7 a trustee is appointed to take control of all your property.

He or she decides whether to sell your property (this includes cars, real estate, stocks, motor homes, etc.  Anything of value is fair game) and use the money he gets to pay your creditors.  In many cases, the trustee decides the property has too little value to sell and closes your case as a “no asset” case.

In Chapter 13, with your attorney, you devise a repayment plan and make monthly payments to the trustee who then pays your creditors.  Under either Chapter 7 or 13, once you file creditors must stop calling and trying to collect from you.  Which type is best depends on your particular circumstances? We help you decide.

Can I keep my car/home/etc.?

Much of your property is exempt, meaning by law it is not subject to being taken to satisfy your debt.  Individuals have a $20,000 homestead exemption, or $40,000 for a married couple, in Utah for their home.  There is a $2,500 exemption per person in an automobile.  Clothes and household items such as stoves, refrigerators, washers and dryers, most furniture and the like are fully exempt.

Retirement accounts, such as IRAs, 401k plans and the like are also exempt.  It’s because of these exemptions that in most Chapter 7 cases the trustee declares it a “no asset” case, meaning he closes it without taking anything.

How long is bankruptcy on my credit?

Bankruptcy will remain on your credit report for 10 years.  But consider this:  If you have debts in collection, debts that have been charged off, judgments or foreclosures, they are already on your credit report.  Once you file bankruptcy, you start over.

In five years, a judgment will still be there, but the bankruptcy will be in the past.  Your credit score (FICO) takes a one-time hit from the bankruptcy. After that, assuming you pay what bills you have timely, your score will go back up.  Most people report they can get credit on reasonable terms within 18-24 months after filing Chapter 7.

What is reaffirmation?

People who file Chapter can reaffirm any debts.  This means they agree to pay the debt even though they have filed bankruptcy.  In the case of a mortgage or car loan, this means you can reaffirm and usually keep the house or car (reaffirmation is an agreement, so the creditor must agree as well).

What if I don’t want my house or car?  You also have the option of surrendering whatever collateral you have.  This means you give it back to the bank and are not responsible for any balance after the bank disposes of the collateral.

Do I have to list all my debts?

Yes. Bankruptcy is an all-or-nothing proposition.  You either declare bankruptcy against all your creditors, including parents or friends who have loaned you money, or you don’t declare it at all.

What is the means test?

The means test is a test to see if you qualify to file Chapter 7.  In short, if your average monthly income for the past six months is below the median income for your state, you pass the means test and can file Chapter 7.  If your income is above the median, there are three other tests under which you might qualify for Chapter 7.

What is credit counseling?

Under the Bankruptcy Code, before you can file bankruptcy, you must complete a credit counseling course.  In addition, after you file and before you can get a discharge, you must complete the second course.  These are offered online from a number of providers and cost about $25-$30. Learn more at http://markalexander.over-blog.com

Do I have to use an attorney to file bankruptcy?  Congress requires that all attorneys advise potential filers that they can file without using an attorney. However, bankruptcy is very complex with lots of rules.  Using an attorney is definitely best and worth every penny.  If you decide that you want to file yourself (called a pro se filing), we can help you fill out the forms and will review your petition and supporting documents before you file.

Conclusion

Remember, if you don’t meet the means test because your household income is above these figures, there are other ways to qualify.  You need to speak to an attorney in any event.  Also, if your debt is primarily non-consumer debt, i.e., business debt, the means test doesn’t apply.