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Bankruptcy FAQs


FREQUENTLY ASKED QUESTIONS CONCERNING BANKRUPTCY FILING IN CENTRAL OREGON



 

ABOUT BANKRUPTCY

Bankruptcy laws have been around for hundreds of years. Modern bankruptcy laws are federal laws that allow debtors to reduce or cancel their debts and to obtain a “fresh start”. Creditors are not allowed to harass debtors who file for bankruptcy and get their debts “discharged”. You don't have to explain to anybody why you are filing for bankruptcy.


WHERE WILL MY CASE BE FILED?

If you live in the Central Oregon Counties of Crook, Deschutes or Jefferson, your case will be filed in the US District Court in Portland, Oregon, however you will NOT be required to travel to Portland. There will be a one time meeting in Bend with a bankruptcy trustee.  Creditors are allowed to attend this meeting, although they hardly ever do.  This meeting with the trustee only takes about five minutes, and when it's done, you will not be required to go back to court again, except in very rare situations. I will be at the meeting with you.


WHAT KINDS OF BANKRUPTCY ARE THERE?

There are several kinds of bankruptcy that apply to individuals, including Chapter 7, Chapter 13, and Chapter 12. Most individuals who file bankruptcy file under Chapter 7. Others file under Chapter 13. Chapter 12 protects family farmers. The laws governing all bankruptcies are complicated, and you should consult an attorney. There are a number of bad things that can happen if you file your bankruptcy incorrectly: Your case may get dismissed, meaning that your creditors will be free to continue harassing or suing you, or you could get into trouble with the court system.

In a Chapter 7 bankruptcy, most debts are "discharged", which means they are canceled completely. Medical bills and unsecured loans, such as credit cards, are usually canceled or discharged in full. Once a debt is discharged, the creditor is prevented from trying to collect the debt from you forever. Bankruptcy laws allow you to keep certain property that is essential to your life, such as clothing, your car (up to a certain value) and a certain amount of equity in your home. (See the discussion below about “exemptions”.) If the value of the equity in your property is less than the exemption amount, you will be allowed to keep it all. If the value of your equity in your property is more than the exemption amount, you might be required by the court to turn it over to the bankruptcy trustee who will sell it and use the money to pay creditors. In many Chapter 7 cases, you will be able to keep all of your property. The rules are different for secured loans, such as loans on homes, cars, boats, and other vehicles. With some minor exceptions, you must either pay for the collateral that secures the loan or give it back to the creditor.

In a Chapter 13 bankruptcy, you basically consolidate your unsecured debts and make one payment to the bankruptcy court for a period of 3-5 years. A small amount of the money you pay to the court is used for court expenses; the remainder is used for payment to your creditors. Any amount left on your dischargable debts at the end of the 3-5 years is discharged, and you won't ever have to pay it. Unlike most Chapter 7 cases, a Chapter 13 bankruptcy may allow you to keep property where the value exceeds the exemption amount. It can also allow the debtor to pay past due payments on a house or a car and still retain the property. Sometimes, secured creditors can be forced to accept less than the full balance owed if the collateral is worth less than the amount owed. In other words, the amount of your mortgage can be reduced so that you don't have to pay any more than the current value of the house. The new bankruptcy laws passed in 2005 make filing a Chapter 13 very complex. This is an area where you will certainly need a lawyer.


HOW MUCH DOES IT COST TO FILE BANKRUPTCY?

You will be coming in for legal advice at a time when you are in a very difficult financial situation. I will make every attempt to keep the costs of your bankruptcy case down to a minimum. I provide an initial consultation at no charge. For Chapter 7 cases, I charge a flat fee of $1,000 for filing the case. I can only accept cash or checks for my fees. If your case requires the filing of additional motions, or if we have to defend against motions filed by your creditors or the bankruptcy trustee, there will be additional fees, but this does not happen in most Chapter 7 cases. In some cases, we will be able to recover money garnished before you filed for bankruptcy, and this money will go to you, although your bankruptcy trustee may require that some of it go to your unsecured creditors.

It's more difficult to estimate how much work will be required in a Chapter 13 case, so I will bill you at an hourly rate. You will need to pay a sum of money in advance, called a “retainer”. I will keep you informed of any additional fees as soon as I can project what they will be.

Because I keep my office expenses low, I can keep your fees low, that I think you will find my fees to be very competitive with other attorneys in the area.

There are some non-attorney related costs to complete a bankruptcy. You will be required to take a credit counseling class before filing. The cost varies, but is usually $35-50. You can take the course online or by telephone. You can find a court approved credit counseling agency by going to: http://www.usdoj.gov/ust/eo/bapcpa/ccde/CC_Files/CC_Approved_Agencies_HTML/cc_oregon/cc_oregon.htm
You are also required to take a more involved financial management class before the court will discharge your debts. This usually costs $35-50. Tax transcripts may need to be ordered, and this costs about $20. the filing fee for a Chapter 7 bankruptcy is $299, and that is in addition to the fees and other costs. The filing fee for a Chapter 13 case is $274, which is also in addition to the other fees and costs.


AM I ELIGIBLE TO FILE FOR BANKRUPTCY?


In order to file under Chapter 7, you must reside or have a domicile, a place of business, or property in the United States. you must not have received a bankruptcy discharge within the last 8 years, or had a bankruptcy case dismissed for cause within the last 180 days. Under Chapter 13, you must also have a steady source of income and cannot have secured debts that exceed $922,975.00 and unsecured debts that exceed $307,675.00. All debtors with consumer debts must also receive credit counseling from an approved agency before filing the case.


IF I AM MARRIED, DOES MY SPOUSE ALSO HAVE TO FILE BANKRUPTCY?


No. However, the spouse that does not file will not get protected by the discharge of debts under the bankruptcy case. This means that, if the non-filing spouse is jointly liable on certain debts, he or she will remain liable for those debts if the filing spouse filed for Chapter 7, and will remain liable for any amount not paid in the filing spouse's Chapter 13 plan. On the other hand, the non-filing spouse will not have bankruptcy noted on his or her credit report. If the spouse's name is not on the loans you want to discharge, the spouse will not need to file, and the spouse will not get his or her credit rating affected by the bankruptcy.


WILL BANKRUPTCY STOP MY WAGES FROM BEING GARNISHED?


Yes. Some of the money garnished may even be returned. It depends on how much was garnished and when it was garnished. I will be able to advise you whether you can expect any money to be returned.


WILL BANKRUPTCY AFFECT MY JOB?


No. Bankruptcy law prohibits governmental and private employers from discriminating or taking any adverse action against a debtor because of the bankruptcy filing.


HOW LONG DOES A BANKRUPTCY CASE TAKE?

A Chapter 7 case usually takes four months unless the bankruptcy trustee finds something wrong with your case. If this happens, your case may take longer.

Chapter 13 cases last three to five years depending on the plan that is approved by the court. However, after the plan is approved, the only involvement you will have with the court is the making of the monthly payments. If your situation changes, you may need to amend the plan, and sometimes this means converting your case to Chapter 7.

About five to six weeks after we file your petition, you will be required to attend a meeting where the bankruptcy trustee will ask questions (under oath) about the information in your bankruptcy petition. This is usually the only time you have to appear in court.  For Central Oregon residents, the meeting is at the National Guard Armory in Bend -- just off of Colorado Avenue on Simpson, by the Deschutes Brewery and Old Mill District.  I'll be at the meeting with you, and it only takes about five minutes.


WHAT IS AN EXEMPTION, AND HOW MUCH OF MY PROPERTY DO I STAND TO LOSE?

There are "exemptions" under the law. Oregon has at least 33 exemptions available. If your equity in your property is below the exemption limit, you will generally be entitled to keep the property. If your equity in the property is more than the exemption amount, the court may require you to deliver the property to the bankruptcy trustee who will sell it and use the money to pay your creditors. To determine how much equity you have, the court will look at the fair market value. This can be determined by several sources, including Kelly Blue Book, in the case of a car, or the sale price of an item at a used merchandise store

It is important to remember that the bankruptcy court values only the equity in an item to determine if it falls within the exemption. For example, a car worth $10,000 wholesale with a loan against it in the amount of $9,000 has only $1,000 of equity.

Some of the exemptions are as follows:

  • Your house:

    • one debtor - $40,000

    • joint debtors - $50,000

  • Your mobile home

    • one debtor - $23,000

    • joint debtors - $30,000

  • Your vehicle - $3,000 per debtor

  • Your home furnishings - $3,000

  • Your clothing/jewelry - $1,800 per debtor

  • Miscellaneous (usually used for cash and bank accounts) - $400 per debtor

  • Most of your retirement accounts - 100%

  • Your net unpaid wages owed to you at time of filing - 75%

  • The tools that you need to do your job - $3,000 per debtor.

You will need to know how to value your property. In some cases, it's possible to convert what may be a non-exempt asset to an exempt asset so that you don't lose it in bankruptcy. The most common property people lose is cash on hand, or tax refunds. Do not use any of your money to pay a loan owed to a relative. As you can see, the rules are complicated, and you will need to consult a lawyer to be able to keep as much of your money as possible.


WILL I PERSONALLY NEED TO APPEAR IN COURT?

Yes. Part of the process of a bankruptcy includes a meeting, called "The First Meeting of Creditors." It is held approximately five to six weeks after the bankruptcy petition is filed. At the meeting, a bankruptcy trustee will put you under oath and ask you questions about the information in the petition to make sure it's accurate, and to get you under oath saying that it's accurate. The trustee will also review some of your documents. It will take about seven to ten minutes. Your creditors can attend and ask questions but usually they don't. If a creditor attends the meeting, it is usually to ask you to reaffirm a debt (you need to be cautious about that, and get legal advice). You must attend the meeting of creditors, or your case will probably be dismissed, which means that you will not get any benefit from your bankruptcy filing. I will assist you in the court appearance.


CAN I KEEP ANY DEBTS SECRET?

No. Bankruptcy law requires that you list every debt, even money owed to close friends and relatives. You must list all debts to get them discharged, but there is no rule against you paying a creditor (such as a friend or relative) after the bankruptcy discharge has been obtained. So list all your debts.

You can probably amend your bankruptcy petition if you forget to list a creditor, but there will be additional attorney fees and court fees to do so. If you're not sure whether you owe a debt, list it anyway, just to be sure.

I can obtain a credit report for you that will list all reported debts, but not all debts get reported, so you will need to check all your records and think long and hard about what debts you have. We need to be sure that you've listed every debt.


WHO WILL FIND OUT THAT I FILED BANKRUPTCY?

Bankruptcy court records are open to the public, so anybody can go to the court and find out what's in your bankruptcy file. It is also possible to obtain some information from the bankruptcy court by phone. The bankruptcy court sends out notices only to you, your attorney and your creditors.


IF SOMEONE CO-SIGNED MY DEBT, DOES MY BANKRUPTCY FILING HELP THEM?

Filing a bankruptcy petition discharges the debt only as to the person filing. Creditors sometimes require cosigners to add some additional safeguards and to protect them from bankruptcy filings. If your debt is discharged, the creditor will most likely try to collect from the cosigner. The only way to protect against that situation is to continue to pay the debt after the bankruptcy is finished or to file a Chapter 13 bankruptcy and pay the debt through the bankruptcy.


DO ALL DEBTS GET CANCELLED?

No. There are some debts that cannot be discharged. These include child support, alimony, any debt owed as a result of drunk driving, and criminal restitution.

You cannot discharge a debt where fraud was present or where there was a willful or malicious injury. An example of fraud would be where you gave false information on a credit application and the creditor granted you a loan based upon the false information. Another example would be where you made a large purchase or obtained a large cash advance on a credit card knowing that you were having financial problems and would have difficulty repaying the debt. If you are planning to file bankruptcy, stop using your credit cards.

Generally, you cannot discharge old taxes unless it has been more than three years since you filed your tax return for that year. Student loans are difficult to discharge. You will have to sue the government and prove that it would create an "undue hardship" for you to pay the loan. Lawsuits against the government are very expensive so you should probably approach filing bankruptcy assuming that you can't get the student loan discharged. The government now has programs that will allow you to repay the loan over as many as 30 years. The result is low payments over a long period of time.

Under Chapter 13, you can discharge tax debts at the end of the 3-5 year period even if you did not file a tax return. Again, the rules of bankruptcy are complicated, so you will be better off if you consult an attorney.


WILL I GET LOWER PAYMENTS?

A Chapter 7 bankruptcy is used primarily to eliminate debts. Sometimes, debts that are not discharged, such as secured debts on your home, can be "crammed down" so that the balance of the loan is equal to the value of the collateral and you can pay off the loan in full with smaller payments. For a vehicle, the loan must be more than approximately 2 1/2 years old. For other personal property, the loan must be more than one year old. However, in a Chapter 13 filing, you can force your creditors to rewrite some of the terms of a secured loan. You can force the creditor to reduce the balance to equal the value of the collateral. You can also force the creditor to lower the interest rate and force the creditor to allow you to catch up on past due payments over the 3-5 years that you make your payments to the court.


WHAT ABOUT MY CREDIT RATING?

The fact that you filed bankruptcy will show up on your credit report. It can remain there for up to 10 years. Filing for bankruptcy is a negative on your credit report, but it can actually improve your credit report compared to what is was before you filed for bankruptcy. Most people, by the time they are ready to file for bankruptcy, already have a bad credit report, so bankruptcy will not always make it worse. Many lenders will consider you for a new loan after you have filed for bankruptcy because at that point, you will have very little debt. The lender will also know that you cannot file again for several years.

I know that filing bankruptcy is the last thing you want to do, but if you need a fresh start, it's because you're already feeling a lot of financial stress. Don't be embarrassed about filing for bankruptcy, because it will probably make your life much less stressful in the long run.


WHAT ABOUT GARNISHMENTS, REPOSSESSIONS AND FORECLOSURES?

You will get what is called an "automatic stay" the minute you file for bankruptcy. This means that creditors are not allowed to take any further legal action against you without permission of the court. For example, if a creditor is garnishing your wages, the automatic stay created by filing the bankruptcy petition prevents further wage garnishments. Also, if a foreclosure sale on your house has been scheduled, the automatic stay will stop the foreclosure sale, at least for a while, and give you more time to sell the home and recover your equity or provide for paying the past due payments through a Chapter 13 plan. An automatic stay can be created by an emergency filing, but you should be aware that you will need to really hustle to get necessary information right after the filing, because the court will put deadlines on furnishing necessary information.


CAN I STOP CREDITORS FROM CALLING ME?

Creditors, especially collection agencies, can be annoying, rude and frequently go beyond the bounds of the collection laws to the point of harassment. You have the legal right to demand that creditors stop calling you, and if they violate your wishes, you will have a possible lawsuit against them. I can write a letter to your creditors requiring them to stop calling you. Although you can demand that they stop harassing you, they can still file a lawsuit against you for collection, and this can lead to wage garnishment. If you get sued on a debt, do not ignore it, or the creditor will get a "default judgment" against you.

It's crucial that you consult with a lawyer before a creditor gets a default judgment against you in court. If you get sued fro a debt, you can ward off or delay the judgment by filing for bankruptcy, or by defending against the lawsuit. I can help you decide which is the best course of action.


WHAT HAPPENS TO BACK TAXES?

Congress has given special protection to past due taxes. The rules for discharging taxes are some of the most complex in the bankruptcy code, so expert advice is necessary.

Under Chapter 7, the tax must be at least 3 years old to have it discharged, but the rules for calculating the 3 years are complicated, and you should consult a lawyer.

The rules are different in a Chapter 13 filing. Before a Chapter 13 plan will be approved, you will be required to file all tax returns that should have been filed as of the date you filed your bankruptcy petition.

As with all other debts, the filing of a bankruptcy petition will stop the IRS or the Oregon Department of Revenue from taking any further collection action for at least a short period of time. If you qualify for a Chapter 13 filing, you may have up to 5 years to pay the past due taxes without any further penalties being assessed.


CAN I TRANSFER PROPERTY TO A FRIEND OR RELATIVE TO KEEP THE BANKRUPTCY TRUSTEE FROM TAKING IT?

No! If you transfer any of your property to a relative, even by selling it, within 1 year of filing for bankruptcy, the bankruptcy trustee can reverse that transfer if it was transferred for less than the fair market value of the property. For example, if you gave your brother in law your car 30 days before you file bankruptcy because you did not want it to show up on your bankruptcy petition, the trustee has the power to sue your brother in law to get the car back. Unfortunately, some people try to make secret deals with friends or relatives before consulting with an attorney. Once you've transferred property like that, you can't take it back. The bankruptcy court will still hold it against you, so don't do it.

WHAT ABOUT MONEY I OWE TO RELATIVES?

Many people owe money to a relative. As mentioned above, you must list every debt including all debts you owe to relatives. The bankruptcy court looks closely at loan transactions between family members, because anybody who owes money to several creditors will probably want to pay the family member first. One of the purposes of bankruptcy law is to treat all creditors equally. One of the questions asked in the bankruptcy petition is whether you have repaid any loans from relatives within the past year. If you have, you are required to disclose the amount. If the amount is large enough, the bankruptcy trustee has the power to get the money back from the relative and spread it out equally among all the creditors.

While there is no set rule as to what amount is "large enough," if the amount were $2,000 or more, the Oregon Courts would consider it to be "large enough." There are other factors which go into the trustee's decision, including whether you have any other assets which exceed the exemption amounts and how likely it is the trustee can obtain a return of the money from the relative. If you owe money to a relative and are considering bankruptcy, stop paying on the loan until you consult with a lawyer.


WHAT IS REAFFIRMING A DEBT, AND HOW IS THAT DIFFERENT FROM REDEEMING A DEBT?

Secured creditors (those creditors who have collateral for their loan, such as a car or boat) will want you to reaffirm the loan. When you reaffirm the loan, you re-obligate yourself to all of the loan terms just as if you were getting a new loan from the creditor. Although this may sound harmless, it has serious consequences. If you reaffirm and then later default on the loan, you are personally liable to pay the balance and you will have no protection on that debt from the bankruptcy. A secured creditor can repossess the collateral if you do not reaffirm the debt. This does not apply to real estate debt.

If you reaffirm a car loan, for example, it will usually require court approval. If your income is less than your monthly expenses, you may be required to participate in a telephone hearing with the court where you will be required to explain to a bankruptcy judge why the reaffirmation is in your best interest and how you intend to make the payment.

More often that not, when you file bankruptcy, you owe more on the collateral securing the loan than it is worth. If your loan is more than 2 1/2 years old, you probably have the right to go through something called “redemption”. Bankruptcy law allows you to reduce the amount owing on the debt to the value of the collateral if you can pay it all at once. Many debtors can find a source of family financing or, perhaps, borrow from a 401K account, to come up with the full value. There is also a company that specializes in redemption funding for cars.


WHAT ABOUT DEBT CONSOLIDATION PLANS?

Be careful about debt consolidation plans! Although there are a few reputable credit counseling services available, most will not and cannot give you what they promise, and you will often end up paying them a fee. Usually, they promise they can settle your debts for 50 cents on the dollar and that when you get done, you will have great credit. The facts are that (1) most people do not complete the "plans" because the plans usually do not work, and if you do complete the plan, (2) your credit is still ruined. Creditors report to credit bureaus exactly what happened. If you get hooked on a 50% plan, your credit report will show that you did not pay all of the debt and that the unpaid balance was charged off. Most creditors do not waive interest or late fees. Most debtors are better off filing a Chapter 7 or Chapter 13 bankruptcy which can force the creditors to accept your terms of repayment. You should also be aware that if some debt is forgiven outside of bankruptcy, the IRS may treat the amount forgiven as income, and make it subject to income taxes.

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