Many people under financial duress avoid filing for bankruptcy because they don’t understand how bankruptcy works, don’t know where to turn for information, or fear that they will not be able to live a normal life after bankruptcy. In fact, bankruptcy law provides a means for recovering from excessive debt, and many (possibly even most) people who qualify to file bankruptcy wish they hadn’t waited so long.
Below, Solomita Law provides answers to three of the most frequently asked questions from clients considering bankruptcy.
Will I be free and clear of debts if the court approves my bankruptcy filing?
Not all debts are dischargeable through bankruptcy. Typically, in Chapter 7 bankruptcy, qualified debtors may be released from all unsecured debts. Under Chapter 13 bankruptcy filing, a debtor may be relieved of certain debts, depending on individual circumstances,, and in general, most debts managed under Chapter 13 include a repayment plan that allows the borrower more affordable payments each month, until those debts are paid, typically within three to five years.
Recent tax debts, as well as child support, criminal restitution and student loans will not be discharged through bankruptcy court; and, in certain cases, the Court may order a borrower to repay these debts in full during the course of the bankruptcy.
How can I protect my assets under bankruptcy?
Your ability to protect assets under rules of law depends on your individual case and the bankruptcy chapter under which you qualify for relief. For specific advice on the merits of your case, speak with a qualified bankruptcy attorney.
Certain assets, such as Individual Retirement Accounts (IRAs) are protected under 11 U.S.C § 522(d) and cannot be involuntarily used to repay creditors in a bankruptcy. Do not allow a creditor to harass you into using your retirement savings to pay a debt! Creditors are not allowed to demand or place a lien against your retirement savings. Varying levels of home equity and motor vehicles (depending on their monetary value) also may be protected from creditors provided that payments are not in arrears and continue to be made regularly according to your loan agreement.
Is there any way to stop creditors from harassing me through bankruptcy?
Bankruptcy court offers debtors relief from creditor harassment by order of an “automatic stay” that goes into effect when a bankruptcy petition is filed. The automatic stay essentially freezes your estate in time and protects you against further creditor actions while your attorney presents your case and advocates on your behalf with the bankruptcy trustee and judge.
The automatic stay stops a creditor from proceeding against a debtor to recover a claim that arose before the bankruptcy filing. During the stay (usually for the length of the bankruptcy proceeding), creditors are prohibited from any act to obtain possession of property of the debtor’s estate or to exercise control over the property of the estate. Creditors may not create, perfect (complete), or enforce any lien against the property, nor may they act to collect, assess or recover a claim that arose before the case.
After a bankruptcy discharge or plan is entered by the Court, the automatic stay is lifted; at that point, creditors must abide by the terms established by the judge. In some cases, debts may be entirely discharged (eliminated). In other cases, the court will establish a debt repayment plan based on the court’s judgment of your ability to pay.
Watch for answers to other common questions in Part II of this article. Or, if you are considering filing bankruptcy and wish to discuss your needs, feel free to contact Solomita Law at 407-545-3625 or send email to Staff@SolomitaLaw.com. We will respond to your questions as soon as possible.