The following are based upon actual bankruptcy questions we have received and provided answers to:

1. What is bankruptcy?

Bankruptcy is a legal proceeding that, among other things, gives individuals a fresh financial start. Federal law gives you the right to file for bankruptcy. Bankruptcy cases are handled in federal court. The filing of a bankruptcy stops your creditors from, among other things, taking or continuing any action to collect a debt from you and starting or continuing a judicial proceeding or action against you, such as a lawsuit.

2. I have heard that the bankruptcy law was changed in 2005, making it hard to file a bankruptcy. Is this true?

You are talking about the changes to the bankruptcy law passed by Congress in 2005. It is true that these changes made the bankruptcy process more complex, requiring individuals filing for bankruptcy and their attorneys to jump through more hoops prior to and during the bankruptcy. For example, individuals must complete credit counseling and debtor education courses and their attorneys must give consumer debtors (individuals whose debts are incurred primarily for personal, family, or household purposes) certain disclosures regarding bankruptcy. But, the basic right to file bankruptcy remains and most of the benefits of bankruptcy remain the same for many individuals.

3. What can bankruptcy do for me?

Bankruptcy positions you to:

* Eliminate your legal obligation to pay most or all of your debts. This is called a “discharge” of debts.
A discharge is tailored to give you a fresh financial start;

* Stop a foreclosure on your home and catch up on missed payments;

* Prevent a repossession of your car or other property and even force the creditor to return property
after it has been repossessed;

* Stop a wage garnishment, lawsuit, phone calls from debt collectors, and similar debt collection actions;

* Restore or prevent termination of utility service; and

* Challenge the claims of creditors, such as those who are trying to collect more than you really owe.

4. What does bankruptcy not do?

Bankruptcy does not:

* Eliminate certain rights of “secured” creditors and generally, bankruptcy does not eliminate liens. A creditor is “secured” if it has taken a lien against property as collateral for a loan. Good examples of secured creditors are creditors who lend you money to buy a car or house. In bankruptcy, you can force secured creditors to take payments over time and eliminate your obligation to pay any additional money if the creditor takes the collateral back. But, you generally cannot keep secured property unless you continue to pay the debt. Generally, liens against your property pass through the bankruptcy unaffected;

* Discharge certain types of debt such as child support, alimony, most student loans,
court restitution orders, criminal fines, loans taken out by fraud, and most taxes;

* Protect cosigners on your debts. When a relative or friend has cosigned a loan and you discharge
this debt in bankruptcy, the cosigner will probably still have to repay all or part of the loan; and

* Discharge debts that arise after the filing of the bankruptcy.

5. How quickly can you get my bankruptcy filed and how soon after filing for bankruptcy will the phone calls from creditors stop?

Usually, it takes about 2-3 weeks to get your bankruptcy filed. Bankruptcy is a very fact-intensive process and attorneys are required to verify all the information you provide, not just take your word for it. The speed of the filing of your bankruptcy really depends on how quickly you are able to get us the financial information and documentation that we need in order to prepare and file your bankruptcy. Here are the steps to our filing process:

Step 1: You call us for help;

Step 2: You fill out a brief online questionnaire about your finances, debts, and assets;

Step 3: After completing Step 2, you meet with us for a FREE consultation;

Step 4: You complete a fact-intensive questionnaire about your finances, debts, and assets and gather up copies of all of the documents we request (such as tax returns, bank statements, pay stubs, and so forth);

Step 5: You meet with us to go over your answers to the questionnaire and provide us the documents we requested, as described in Step 4;

Step 6: We prepare your bankruptcy paperwork and e-mail/call you with any follow-up questions;

Step 7: We meet with you to sign your bankruptcy paperwork; and finally

Step 8: Your bankruptcy is filed!!

The phone calls should stop usually within a week of the filing of your bankruptcy, after your creditors receive notice of your bankruptcy. Notice of your bankruptcy is mailed to your creditors by the court and usually takes a few days to reach your creditors after it is mailed.

6. How much will a bankruptcy cost me?

Chapter 7 Bankruptcy:

For a chapter 7 bankruptcy, the court charges a filing fee of $306.00. The court may allow you to pay this filing fee in installments if you cannot pay it all at once. If you are not able to pay the filing fee in installments and your household income meets a certain criteria, you may ask the court to waive the filing fee. If you hire an attorney, you will also have to pay the agreed upon legal fees. As a general guideline for those whose debts are primarily consumer ones and income falls below Arizona’s median income, you will probably pay approximately $1,500.00 in legal fees for a local, decent attorney in a simple chapter 7 bankruptcy. While some law firms will charge you less (i.e. the “$999.00” bankruptcy), you get what you pay for. If your income is above the median, you will probably pay up to $2,200.00 in legal fees, as additional work will be required. If your debts are primarily non-consumer ones (i.e. business debt), you can expect to pay around $3,000.00 and up in legal fees, depending on the complexity of your case.

Chapter 13 Bankruptcy:

For a chapter 13 bankruptcy, the court charges a filing fee of $281.00. The filing fee cannot be waived but it can be paid in installments. Because chapter 13 cases are more complicated than chapter 7 cases, the legal fees are higher. You can expect to pay between $3,000.00 and $4,500.00 in legal fees for a decent, local attorney in a chapter 13 bankruptcy. If your chapter 13 case involves complicated legal issues, lien stripping, and/or mortgage modification, the legal fees will be at the higher end of the spectrum. The good news is that most attorneys require a down payment of approximately $1,500 to $2,000 (plus the filing fee) to prepare and file a chapter 13 case. The balance of the legal fees is paid through the chapter 13 plan over a period of time.

7. What is a bankruptcy petition preparer?

This is a person who charges you a fee (usually $100.00 to $500.00) to prepare or type up documents that you will file in the United States Bankruptcy Court. You provide the petition preparer with the information and he/she will input that information into the official bankruptcy forms. A petition preparer, also called a “paralegal” or “typing service,” is not an attorney and cannot give you legal advice, such as which type of bankruptcy to file and how to exempt or protect your property. By hiring a petition preparer, you essentially go into bankruptcy by yourself: You must file the bankruptcy paperwork yourself and represent yourself in your bankruptcy case. A local judge here once indicated that going into bankruptcy without an attorney is like performing surgery on yourself. It’s very dangerous because you risk losing your property and even your bankruptcy.

8. How do I qualify for Bankruptcy?

Chapter 7 Bankruptcy:

Businesses and individuals qualify for a chapter 7 bankruptcy. If your debts are incurred primarily for personal, family, or household purposes (this includes all your secured debts as well, such as your home loan and car loan), you must qualify for the chapter 7 bankruptcy based upon your income for the six months preceding the filing of the bankruptcy (not counting the month that you file). Income will include wages, business and unemployment income, regular contributions to your household from others, rent money you receive, and so forth. If your income is above what is called the “median” income for your state and household size, you will have to take a “means test” to determine whether you still qualify. In this test, you will deduct any expenses the IRS gives you from your monthly income. If, after applying all the expenses, your income is still too high, you will be forced to file a chapter 13 bankruptcy (assuming you qualify and still want to file a bankruptcy). There are no debt limits in a chapter 7 bankruptcy (meaning that you don’t have to have a certain amount of debt).

Chapter 13 Bankruptcy:

You must be an individual with a regular stream of income to qualify for a chapter 13 bankruptcy. Businesses cannot file a chapter 13 bankruptcy. There are also debt limitations in a chapter 13 bankruptcy. Additionally, your tax returns must have been filed for the four years preceding the filing of the bankruptcy.

9. I heard that I have to take a class to file for bankruptcy. Is this true?

If you are an individual, you will be required to complete a credit counseling course within the 180-day period preceding the day your bankruptcy is filed. This course can be completed online or via telephone and usually takes up to 2 hours. Additionally, you will be required to complete a debtor education course on financial management after your bankruptcy is filed. This course can also be completed online or via telephone and usually takes up to 2 hours. When this firm handles your bankruptcy, it pays for the cost of these courses. Some law firms will require you to pay for these courses yourself.

10. If I file for bankruptcy, will I have to attend any hearings?

Yes, you will have to attend at least one hearing. The first and main hearing is the meeting with your bankruptcy trustee called the “meeting of creditors.” Your bankruptcy trustee represents your creditors and oversees your bankruptcy case. This hearing usually happens about five to six weeks after the day your bankruptcy is filed. You cannot pick the exact day and/or time of the hearing, as that will depend on your trustee’s availability. Most of the time, this meeting will be a short and simple one, where you will be asked a few questions about your bankruptcy paperwork and financial situation. If you have a car loan, you may also be required to attend another hearing with the judge in your bankruptcy case. This hearing is more formal and will happen after the hearing with your trustee but before you get a discharge. There is no need to worry about attending these hearings, as they are standard hearings that others similarly situated also have to attend. Also, rest assured that this firm will help you prepare for the hearing(s) as well as go with you to hearing(s), holding your hand through the entire process.

11. How long does a typical chapter 7 bankruptcy take?

The typical “no asset” bankruptcy takes about six months from the time the bankruptcy is filed until the day you get the discharge. The discharge means that you’ve jumped through all the hoops of the bankruptcy and that the debts you listed in your bankruptcy are no longer collectible (you are required to list all your debts). Some bankruptcies can take less time and some can take longer, particularly if there are assets in your bankruptcy that your trustee will be administering, such as tax refunds.

12. If I file for bankruptcy, will I lose my home, car, or other property?

In the majority of cases, you will be able to keep property such as your home and car. So long as your equity in the property, if any, is protected from creditors or “exempt,” you will not lose the property (by equity, we mean the value of the property minus any liens against it). Even if your property is not fully exempt, you will be able to keep it in a chapter 13 bankruptcy if you pay its non-exempt value to creditors. If, for any reason, something is not exempt or protected, we will advise you ahead of time and help you plan for this issue prior to the bankruptcy so that there are no surprises.

In a chapter 7 bankruptcy, you can keep all property that the law calls exempt. What you can exempt depends on the state where you live. If you moved to your current location from a different state within two years before your bankruptcy filing, you may be required to use the exemptions from the state where you lived just before the two-year period. If the exemption laws of your state do not prohibit you from using the federal bankruptcy exemptions, you may have a choice of using either the federal bankruptcy exemptions or your state’s exemptions. If your state has “opted” out of the federal bankruptcy exemptions, as Arizona has, you will be required to choose exemptions mostly under your state law. But, even in an “opt-out” state, you may use a certain federal bankruptcy exemption that protects individual retirement accounts (IRAs) and retirement funds in pension plans.

Assuming you are using Arizona’s exemptions, you can exempt $150,000.00 equity in your home, $5,000.00 equity in a car (if married, you get $10,000.00 equity in two cars. You may be entitled to get an additional $5,000.00 equity if you are disabled), $4,000.00 in certain household goods (if married, you get $8,000.00), $2,500.00 in things you need for your job (if married, $5,000.00. Items must be primarily used for and necessary to carry on your business or profession); and $500.00 in wearing apparel (if married, $1,000.00). IRAs and retirement funds are generally protected. For more information on exemptions, read Ms. Zlotnik’s guide, “What’s Protected from Creditors – Inside and Outside of Bankruptcy.” This firm will help you plan for the bankruptcy so that your assets receive maximum protection and you can keep the property you really want to keep.

13. What is ¨reaffirmation¨?

When you “reaffirm” a debt in your bankruptcy, you agree to be legally responsible for that debt despite the bankruptcy discharge of your other debts. If you reaffirm a debt, that particular debt will not be discharged in the bankruptcy. If you fall behind on a reaffirmed debt post-bankruptcy, you can get collection calls, be sued, and possibly have your wages garnished or other property taken. Reaffirming a debt is a serious matter and should generally be avoided. In Arizona, however, if you have a car loan and want to make sure you can keep the car after the bankruptcy, you will have to attempt to go through a reaffirmation process, which may include attending a hearing with your bankruptcy judge. This firm will walk you through this complex process so that you are fully advised and prepared.

14. Can I own anything after my bankruptcy?

Definitely! Some people worry that they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed so long as what you obtain does not arise out of something you were entitled to before the bankruptcy. For instance, a paycheck that was earned before the bankruptcy and paid to you after the bankruptcy will be partially yours to keep and partially your bankruptcy trustee’s to take. If you receive a property settlement, inheritance, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors unless it is exempt or excluded from the bankruptcy.

15. Will bankruptcy affect my credit?

There is no clear answer to this question. But, if you are behind on your bills, your credit is likely already poor. Bankruptcy will probably not make things any worse. The fact that you’ve filed a bankruptcy can appear on your credit record for ten years from the date your case was filed. But, because bankruptcy discharges your old debts (meaning the debts are no longer collectible), you are likely to be in a better position to pay your current bills, rebuild your credit, and get new credit. Your credit record should also improve after a bankruptcy so long as your discharge is being reported correctly. Debts discharged in your bankruptcy should be listed on your credit report as having a zero balance. The debts should also be reported as discharged and not delinquent. Debts incorrectly reported as having a balance owed and/or being delinquent will negatively affect your credit score and make it more difficult or costly to get credit. You should check your credit report 2-3 months after your bankruptcy discharge and file a dispute with credit reporting agencies if something is not correct.

Additionally, you will probably receive credit offers even before your bankruptcy is over. The question is, how much interest and fees will you have to pay? Be very careful about what you sign up for and how much it is costs. If you are looking to obtain financing for a home, some individuals have been able to do so within a few years of the bankruptcy. It really depends on how quickly you can rebuild your credit after the bankruptcy, such as by paying bills on time, and the individual lender and its practices.

16. Can I lose my job because I filed for bankruptcy?

No. A private employer or government unit cannot fire or discriminate against you because you have filed for bankruptcy. Government employers also cannot refuse to hire you because of a bankruptcy. Private employers, however, are not prohibited from refusing to hire due to bankruptcy. In most cases, your employer will not be notified of your bankruptcy (your bankruptcy, however, is public information which can be accessed online for a fee but someone would have to know to look for that information and jump through some hoops to get the information). The only parties that usually receive notice of bankruptcies are creditors, leaseholders, and co-borrowers.

DISCLAIMER: Please note that the information contained in this web site has been prepared by the Law Office of Olga Zlotnik, PLLC for informational purposes only and does not constitute, and should not be considered legal advice. Transmission of the information contained in this web site and receipt by the reader is not intended to create and should not be construed as creating an attorney-client relationship with Law Office of Olga Zlotnik, PLLC. Communication by e-mail, telephone or in writing with us does not constitute the creation of an attorney-client relationship until a written fee agreement is signed. While we would certainly like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Please do not send us any information about a matter that may involve you until you receive authorization to do so from us. The bankruptcy law services described herein are with respect to bankruptcy relief under the Bankruptcy Code. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.