Common Bankruptcy Questions

A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems. This brochure cannot explain every aspect of the bankruptcy process. If you still have questions after reading it, you should speak with an attorney familiar with bankruptcy.

What Is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

What Can Bankruptcy Do for Me?

Bankruptcy may make it possible for you to:

• Eliminate the legal obligation to pay most or all your debts. This is called a "discharge" of debts. It is designed to give you a fresh financial start.
• Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
• Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
• Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
• Restore or prevent termination of utility service.
• Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

What Bankruptcy Cannot Do?

Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:

• Eliminate certain rights of "secured" creditors. A "secured" creditor has taken a mortgage or other lien on property as collateral for the loan.  Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.
• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.
• Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
• Discharge debts that arise after bankruptcy has been filed.

What Different Types of Bankruptcy Cases Should I Consider?

There are four types of bankruptcy cases provided under the law for persons:

• Chapter 7 is known as "straight" bankruptcy or "liquidation." It requires a debtor to give up property which exceeds certain limits called "exemptions", so the property can be sold to pay creditors.
• Chapter 11 known as "reorganization", is used by businesses and a few individual debtors whose debts are very large.
• Chapter 12 is reserved for family farmers.
• Chapter 13 is called "debt adjustment". It requires a debtor to file a plan to pay debts (or parts of debts) from current income.

Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.

If your income is above the median income for a family the size of your household in your state, you may have to file a chapter 13 case (the median family income for a family of 4 in Kansas as of May 1, 2020 was $88,698-your state’s figures may be higher or lower, https://www.justice.gov/ust/eo/bapcpa/20200501/bci_data/median_income_table.htm is the website for current median income figures). An above median-income consumer must fill out “means test” forms requiring detailed information about income and expenses. If, under standards in the law, the consumer is found to have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that the consumer can not file a chapter 7 case, unless there are special extenuating circumstances.

Chapter 7 (Straight Bankruptcy)

In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for "exempt" property which the law allows you to keep. In most cases, all your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.

If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

If your income is above the median income for a family the size of your household in your state, you may have to file a chapter 13 case (the median family income for a family of 4 in Kansas as of May 1, 2020 was $88,698-your state’s figures may be higher or lower, https://www.justice.gov/ust/eo/bapcpa/20200501/bci_data/median_income_table.htm is the website for current median income figures). An above median-income consumer must fill out “means test” forms requiring detailed information about income and expenses. If, under standards in the law, the consumer is found to have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that the consumer can not file a chapter 7 case, unless there are special extenuating circumstances.

Chapter 13 (Reorganization)

In a chapter 13 case you file a "plan" showing how you will pay off some of your past‑due and current debts over time, usually over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property‑‑especially your home and car‑‑which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.

You should consider filing a chapter 13 plan if you:

1. own your home and are in danger of losing it because of missed payments;
2. own a car and are in danger of losing it due to missed payments:
3. are behind on debt payments, but can catch up if given some time;
4. have valuable property which is not exempt, but you wish to keep by paying creditors the value of this property from your income over time.

You will need to have enough income in chapter 13 to pay for your necessities and to keep up with the required payments as they come due.

What Must I Do Before Filing Bankruptcy?

You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you will need to file with the Bankruptcy Court a certificate from the agency proving that you received the counseling.

If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. It is almost never a good idea to sign up with someone who is keeping the first several thousands of dollars for themselves without immediately paying most of your payments to your creditors. And being an “approved” agency for bankruptcy counseling is no guarantee that the agency is good. It is also important to understand that even good agencies will not be able to help you much if you’re already too deep in financial trouble.

Some of the approved agencies offer debt management plans (also called DMPs). This is a plan to repay some or all your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. It is important to keep in mind these important points:

• Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you.

• If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case).

• There are approved agencies for bankruptcy counseling that do not offer debt management plans.

It is usually a good idea for you to meet with an attorney before you receive the required credit counseling. Unlike a credit counselor, who can not give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. The attorney can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust.

What Property Can I Keep?

In a chapter 7 case, you can keep all property which the law says is "exempt" from the claims of creditors. Exemptions can be determined under your state law or under federal law. In Kansas and Missouri, the exemptions are determined under State law. However, to claim the exemptions of Kansas or Missouri, you must have lived in the state in which you are filing for the two years prior to filing bankruptcy. If you have not lived in the state in which you currently live for two years, the answer to what you may exempt becomes very complicated.

Kansas exemptions include:

• unlimited amount of equity in your home, unless you purchased your home in the last 1215 days, in which case you may be limited to $125,000 in equity;
• $20,000 in equity in your car;
• household goods and clothing reasonably necessary for one year;
• $7,500 in things you need for your job (tools, books, etc.);
• Your right to receive certain benefits such as social security, unemployment compensation, veteran's benefits, public assistance, pensions and most retirement accounts‑-regardless of the amount:
• $1,000 in jewelry and articles of adornment:
• Life insurance policies if opened more than one year before filing bankruptcy.
• Earned income credit portion of your tax refunds.

When a married couple files together, each is generally entitled to their own exemption.

In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture, appliances and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.

You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $25,000 car with a $5,000 car loan, you count your exemptions against the $20,000 which is your equity if you sell it.

While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn't file bankruptcy.

What Will Happen to My Home and Car If I File Bankruptcy?

In most cases you will not lose your home or car during your bankruptcy case if your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it if you pay its non-exempt value to creditors in chapter 13.

However, some of your creditors may have a "security interest" in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don't make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.

Can I Own Anything After Bankruptcy?

Yes! Many people believe 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. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.

Will Bankruptcy Wipe Out All My Debts?

Yes, with some exceptions. Bankruptcy will not normally wipe out:

1. money owed for child support or alimony as well as debts established by a divorce order not solely in the nature of support, fines, and some taxes;
2. debts not listed on your bankruptcy petition;
3. loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
4. debts resulting from "willful and malicious" harm;
5. student loans owed to a school or government body, except if: ‑‑ the court decides that payment would be an undue hardship, but it is very difficult, expensive and rare to successfully establish such an undue hardship;
6. mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

Will I Have to Go to Court?

In most bankruptcy cases, you only have to go to a proceeding called the "meeting of creditors" to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Due to the Covid Pandemic, these hearings are being held by telephone.

Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear before a judge at a hearing. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.

What Else Must I Do to Complete My Case?

After your case is filed, you must complete an approved course in personal finances. This course will take approximately two and one-half hours to complete. Your attorney can give you a list of organizations that provide approved courses, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust. In a chapter 7 case, you should sign up for the course soon after your case is filed. If you file a chapter 13 case, you have more time than in a 7, but as the better courses will actually teach something about money and budgeting, you should take the course sooner than later.

Will Bankruptcy Affect My Credit?

There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things much worse.

The fact that you've filed a Chapter 7 bankruptcy can appear on your credit record for ten years. But since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit. Most folks who file bankruptcy can obtain a mortgage, at competitive market rates, two to four years after receiving a discharge.

What Else Should I Know?

Utility services‑-Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service, and you do have to pay bills which arise after bankruptcy is filed.

Discrimination—A current employer or government agency cannot discriminate against you because you have filed for bankruptcy. However, future employers can.

Driver's license‑‑If you lost your license solely because you couldn't pay court‑ordered damages caused in an accident, bankruptcy will allow you to get your license back.

Co‑signers‑‑If someone has co‑signed a loan with you and you file for bankruptcy, the co‑signer may have to pay your debt.

What Does It Cost to File for Bankruptcy?

The filing fee paid to the Court is $338 to file for bankruptcy under chapter 7 and $310 to file for bankruptcy under chapter 13, whether for one person or a married couple. You also must complete a credit counseling class before you can file bankruptcy, which can cost as little as $10.00 per Debtor. After filing bankruptcy, you must complete another education class, which again can cost as little as $10 per Debtor.

Mr. Turner generally charges minimum attorney fees of $1,700 for a Chapter 7 filing. Chapter 13 fees can vary, but Mr. Turner generally charges minimum attorney fees of $3,600 for a Chapter 13 filing. Note that in a Chapter 13, most of those fees can be paid over time after you file. These fees will be higher if the person filing bankruptcy is above median income, is seeking to stop a foreclosure, has rental properties or is or has been recently self-employed.

How Do I Select a Bankruptcy Attorney?

As with any area of the law, it is important to carefully select an attorney who will respond to your personal situation. The attorney should not be too busy to meet you individually and to answer questions as necessary. Be aware some firms use non-attorney staff to handle most of the work and communication, so you will have to decide if you are comfortable with that.

You should carefully read retainers and other documents the attorney asks you to sign.

In bankruptcy, as in all areas of life, remember that the person advertising or charging the cheapest rate is not necessarily the best. Indeed, “you get what you pay for” is particularly true with legal representation in bankruptcy court.

Paying for debt counseling, other than the course required to file bankruptcy, is almost never a good idea. There is almost nothing that a paid debt counselor can offer other than a recommendation about whether bankruptcy is appropriate and a list of highly priced debt consolidation lenders. There is no good reason to pay someone for this service. A reputable attorney will generally provide counseling on whether bankruptcy is the best option. This avoids the double charge of having to pay a counselor and then an attorney. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions.

As for debt management plans, where you pay them money that they are supposed to pay to your creditors, you need to understand there are so many flat out crooks in the market today, particularly online, who are really just taking your money until you figure out they are crooks. These plans are rarely successful even when the agency is honest.

Document preparation services also known as "typing services" or "paralegal services" involve non-lawyers who offer to prepare bankruptcy forms for a fee. Problems with these services often arise because non-lawyers cannot offer legal advice in bankruptcy cases and they offer no services once a bankruptcy case has begun. There are also many shady operators in this field, who give bad advice and defraud consumers.

When first meeting a bankruptcy attorney, you should be prepared to answer the following questions:

• What types of debt are causing you the most trouble?
• What are your significant assets?
• How did your debts arise and are they secured?
• Is any action about to occur to foreclose or repossess property or to shut off utility service?
• What are your goals in filing the case?

Can I File Bankruptcy Without an Attorney?

Although it may be possible for some people to file a bankruptcy case without an attorney, it is not a step to be taken lightly. The process is difficult, and you may lose property or other rights if you do not know the law. It takes patience, careful preparation and frankly a lot of hard work.

I offer a free consultation to those interested in learning whether bankruptcy could be the right option for them.

Remember: The law often changes. Each case is different. This pamphlet is meant to give you general information and not to give you specific legal advice.

I am a federally designated debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code.

How Ordering Your Credit Report Can Help You in Bankruptcy

I request that each of my clients filing for bankruptcy obtain a credit report for the reasons listed below. If you are married, I request obtaining credit reports for both you and your spouse.

1. Obtaining the credit report helps you get accurate creditor names, addresses, types of debt, balances due, and account numbers.
2. Through your credit report, you may find creditors whom you have overlooked. For a debt to be discharged, it must be listed in your bankruptcy pleadings, so it’s important that we find out about all debts.
3. Credit reports can alert you to judgments against you.
4. Credit reports can alert you to liens against your property, and the need to seek lien avoidance; thus helping you protect your property in some cases.
5. We may find out about co-signers to some of your debts, which are important to list in a bankruptcy.
6. If you are married, there may be surprising items on your credit report or your spouse’s, and the reports can help us determine whether you should file individually or jointly.
7. You may find out about debts created by a former spouse, who may have forged your signature to obtain credit
8. Credit reports can alert you to mistakes on your credit record. The report will list the names and addresses of all three major credit bureaus that you can contact to correct any mistakes or provide updated information.
9. Credit reports often contain the names and addresses of collection agencies representing creditors, and we can notify these collection agencies about the bankruptcy so that collection efforts stop.
10. If the IRS has a tax lien on your property, the credit report will alert you so that it can be dealt with properly.
11. Knowing what is on your credit report can help you get credit approval for important purchases after your debts are discharged.

Not every creditor reports debts to a credit bureau, so your credit report will not list all debts. You should be sure to let your attorney know about all debts you are aware of, as you must list all creditors in your bankruptcy, without any exceptions whatsoever.

In completing your debt forms for each and every creditor, it is important that you give me the name and address of the creditor itself, in addition to the name and address of any collection agents. Just giving notice of your filing to collection agents means the actual creditor may not get notice of your filing, in which case your debt to the creditor may not be discharged.

Obtaining a Free Copy of Your Credit Report

You are entitled to obtain a free copy of your credit report from each of the three national credit reporting agencies annually. This is because of the Fair Credit Reporting Act (FCRA) a/k/a Fair and Accurate Credit Transaction Act (FACTA).

You cannot get the free copy of your report by contacting the national reporting agencies directly. To order your free credit report you must order using one of the following three methods (my office will assist you in obtaining your report if you prefer):

Ordering on the Internet:

Click on: www.annualcreditreport.com

If you make your request online, you should be able to access that report immediately.

Ordering through a toll-free telephone number:

Call 877.322.8228

Your credit report will be processed and mailed to you within 15 days.

Ordering your credit report by mail:

Complete the order form found at http://www.ftc.gov/credit (a copy is attached) and mail it to:

Annual Credit Report Request Service P.O. Box 105281 Atlanta, BA 30348-5281

You can order your credit report from one, two, or all three reporting agencies at the same time or you can stagger your requests over a year's time. You will have to provide some information when requesting your report: name, address, Social Security number and date of birth. If you moved in the past two years, you may have to provide your previous address. Also to maintain the security of each consumer's file, the credit reporting agency may ask for some information that only you would likely know. Each company might ask for different information.