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Why Should I File for Bankruptcy

Chapter 7 vs. Chapter 13 Bankruptcy

Chapter 7 and Chapter 13 Bankruptcy Fees

How Do I Stop Garnishment?

How Do I Schedule a Consultation?

Q. How can I set up a free consultation to discuss bankruptcy?

A. At The Brad Hendricks Law Firm we offer a free bankruptcy consultation. There is no cost to you for the consultation nor is there an obligation to file bankruptcy. Our team simply wants to evaluate your financial situation and determine if bankruptcy is the right option for you. During a consultation with our law firm, our attorneys will be able to determine whether Chapter 7 or Chapter 13 is the best option for your situation and let you know how much a bankruptcy is going to cost you to file. You can set up a free bankruptcy consultation with our firm by calling any of our bankruptcy staff at (501) 221-0444 or toll-free at (800) 603-5100, or you can e-mail Caroline Lewis, Managing Bankruptcy Attorney, or Robin Morgan, Senior Bankruptcy Paralegal at bankruptcy@bradhendricks.com.

Disclaimer: Legal advice is based on the information provided to the law firm during the consultation. If Client has not provided Attorney with sufficient information upon which to fully advise Client, Attorney may request additional information necessary to accurately evaluate Client’s options.

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Q. What is bankruptcy?

A. For most individuals, bankruptcy is a legal proceeding or procedure designed to help those who cannot pay their bills receive a fresh financial start, either by discharging qualified unsecured creditors through Chapter 7, through which many debts are wiped clean through a process that lasts only a few months, or through the completion of a “repayment” plan under Chapter 13 of the Bankruptcy Code, which lasts between three (3) to five (5) years.

When a bankruptcy petition is filed the “automatic stay” provision of the Bankruptcy Code prohibits your creditors from contacting you to try to collect money from you, at least until your debts are sorted out according to law, which assigns different debts specific classifications of priority by which most creditors are bound. The automatic stay is an injunction that automatically stops all lawsuits, foreclosures, garnishments, and other collection activity against a debtor the moment a bankruptcy petition is filed.

If a creditor continues to attempt to collect a debt after the bankruptcy is filed, the creditor may be in violation of the automatic stay. In such cases, the debtor should immediately call their attorney so that their attorney can notify the creditor in writing that the debtor has filed bankruptcy and provide them with either the case number and filing date, or a copy of the petition that shows it was filed. If the creditor still continues to try to collect, the debtor may be entitled to take legal action against the creditor to obtain a specific order from the court prohibiting the creditor from taking further collection action and, if the creditor is willfully violating the automatic stay, the court can hold the creditor in contempt of court and punish the creditor. Any such legal action brought against the creditor will be complex and will normally require representation by a qualified bankruptcy attorney.

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Q. Who can file a bankruptcy case?

A. The Bankruptcy Code permits any qualified person, partnership, corporation or business trust to file a bankruptcy case. If the debtor (person or entity who owes the money) files a petition to start the bankruptcy, it is a “voluntary” bankruptcy. If the creditors (people or entities to whom the money is owed) file a petition against a debtor to start the bankruptcy, it is an “involuntary bankruptcy.” When an involuntary case is filed, the debtor must contest the bankruptcy case within a certain time period to oppose the bankruptcy. Only married persons can file a joint petition; unmarried persons, corporations and partnerships must file separate cases. An individual with a business may not file a joint petition, but must instead file separate cases.

With very few exceptions, before a bankruptcy case can be filed, an individual or joint debtors must take a credit counseling course offered by an approved budget and credit counseling agency. After the bankruptcy case is filed, an additional class—often referred to as a “debtor education” or “financial management” class—must be completed by each debtor before a discharge can be entered and the case closed.

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Q. What does bankruptcy cost?

A. Your cost to file bankruptcy may vary depending on the Chapter under which you file for bankruptcy relief, your financial circumstances, and the complexity of the case. For ease of explanation, think of the costs associated with a bankruptcy case in terms of “parts” and “labor,” the common components of an automobile repair invoice.

“Parts” or Filing Costs: The filing fee and initial expenses, which include the required credit counseling and financial management classes and a comprehensive credit report (but do not include attorney fees) are the “parts” that are required in all cases.

  • Currently, the filing expense charged by the bankruptcy court to open a Chapter 7 bankruptcy case is $335, whether you are filing individually or with your spouse. For an individual, the cost of the courses and credit reports are $60, total, while the married couple’s cost is $80 with The Brad Hendricks Law Firm. Therefore, you may expect to pay $395 or $415 to file Chapter 7 bankruptcy, which does not include attorney’s fees, i.e., the “labor” portion of your bankruptcy case. Costs for the courses and credit reports may vary between law firms, but the cost of the filing fee is the same for everyone.
  • Under Chapter 13, the initial cost to file a bankruptcy petition includes $310 that is paid to the Court to open the case, plus an additional $60 or $80 (with The Brad Hendricks Law Firm) for the required classes and a comprehensive copy of your credit report, depending on whether you are filing individually or with your spouse. The total filing costs will be either $370 or $390.

Under certain circumstances, the Court may allow you to pay the filing fees ($335 or $310) in installments if you are unable to pay them all at once. Talk to us about whether an installment plan for filing fees is a good option for you. For additional information, please visit the U.S. bankruptcy court’s website.

“Labor” or Attorney’s Fees: Attorney’s fees are determined based on the individual circumstances of each Chapter 7 case and may vary depending on the existence of judgments, previous garnishment efforts, whether there are secured debts that the client wishes to reaffirm, etc. Our firm takes pride in its reasonable attorney’s fees. In Chapter 13 cases, the initial fees associated with filing the case, addressing initial objections and other issues raised by creditors, the court, or the Chapter 13 trustee—typically those services required in order to obtain plan confirmation from the Court—are set based on the median income of the client. These “no look” fees must be approved by the Court before the Trustee will pay them as part of your plan. If you have questions about specific fees and costs that may arise, please do not hesitate to ask any member of the firm’s Bankruptcy Department.

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Q. What are the different “chapters” in bankruptcy?

A. The Brad Hendricks Law Firm’s bankruptcy services are concentrated under two “Chapters” of the Bankruptcy Code: Chapter 7 and Chapter 13.

Chapter 7: Liquidation or “Straight” Bankruptcy

Chapter 7 is the liquidation chapter of the Bankruptcy Code, and cases filed under Chapter 7 are commonly referred to as “straight bankruptcy” or “liquidation” cases. Chapter 7 requires a debtor to give up property which exceeds certain limits (“exemptions”) so the property can be sold or liquidated by the appointed Chapter 7 Trustee to pay creditors, and to keep property and avoid liquidation to pay unsecured creditors. In other words, “liquidation” is the sale of a debtor’s property for the purpose of distributing the sales proceeds to the debtor’s creditors. Potential debtors should realize that the filing of a petition under Chapter 7 may result in the loss of property.

Chapter 13: Debt Repayment for Individuals with Regular Income

Also known as the “debt adjustment” form of bankruptcy, Chapter 13 is the debt repayment chapter for individuals with regular income. In a Chapter 13 case, debtors may keep their property by repaying creditors over the life of a plan that may extend from 36 to 60 months. The length of the plan may be fixed by law, depending on the debtor’s income. When a debtor files Chapter 13, the debtor proposes to make monthly payments to a Chapter 13 Trustee, who in turn disburses funds to various creditors according to the Plan, once the Plan has been approved by the Court. Upon completion of the Plan, most debts are discharged.

Chapters 9, 11, and 12

Other types of bankruptcy are set forth under Chapter 9, 11, and 12 of the Bankruptcy Code and include:

Chapter 9 (“Municipal or Governmental Bankruptcy”) is only for municipalities and governmental units, such as schools, water districts, and similar entities.

Chapter 11 (“Reorganization Bankruptcy”) is the reorganization chapter available to businesses and individuals who have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization which must be approved by the Court. In addition to the filing fee paid to the Bankruptcy Clerk, a quarterly fee is paid to the U.S. Trustee in all Chapter 11 cases. There is no debt limit under Chapter 11.

Chapter 12 offers bankruptcy relief to those who qualify as family farmers or family fishermen. There are debt limitations for Chapter 12, and a certain portion of the debtor’s income must come from operating a farming or fishing business. Chapter 12 debtors are required to propose a plan to repay their creditors from future income, which must be approved by the Court. As with other Chapters, payments are made through a Chapter 12 Trustee, who not only disburses payments, but monitors the farming or fishing operation while the case is pending.

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Q. Which chapter is right for me, and do I need an attorney to file bankruptcy?

A. Although the Bankruptcy Code offers different options that may be available to a debtor, the decision to file bankruptcy, or under which to file bankruptcy, depends on your particular circumstances.

Those who quality for either Chapter 7 or Chapter 13 have an advantage in that they are able to choose the type of bankruptcy that makes the most sense for their particular circumstances. Not all people have a choice, however. For example, filers whose incomes are higher than the median income for a family of their size in their state may not be allowed to file for Chapter 7 bankruptcy if their disposable income, after subtracting certain allowed expenses and required debt payments, would allow them to pay back some portion of the unsecured debt over a five-year repayment period. Those who have secured debts of more than $1,149,525 and unsecured debts of more than $383,175, on the other hand, cannot use Chapter 13 bankruptcy.

Most people who file for bankruptcy choose to use Chapter 7, if they meet the eligibility requirements because Chapter 7, unlike Chapter 13, does not require filers to pay back any portion of their debts. But Chapter 13 may be a more attractive alternative for those who may have missed house payments and want to safely make up those missed payments over time, instead of losing their home in foreclosure.

Considering your personal facts, comparing them to each chapter’s requirements, and deciding which chapter to select, is considered legal advice. While it is possible to file bankruptcy “pro se,” or without legal representation, the decision of whether to file a bankruptcy and under what chapter is an extremely important decision and should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all the relevant facts. Moreover, if you do file bankruptcy pro se, you must know that the Court is not permitted to give legal advice, assist with the preparation of forms, or assist you during various meetings and proceedings that may be scheduled in your case.

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Q. What can bankruptcy do for me?

A. Bankruptcy may make it possible for you to:

  • Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to “reset” your credit, so to speak, in order to allow you and your family a fresh financial start.
  • Allow you to catch up on missed payments on your home or manufactured home and to avoid foreclosure while you do so. Bankruptcy does not eliminate your mortgage or other lien on your property though, unless you pay the debt owed.
  • Prevent repossession of a car or other property, if you file a bankruptcy case in a timely manner.
  • Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
  • Restore or prevent termination of your utility services.
  • Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

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Q. What does bankruptcy not do?

A. While bankruptcy can do much to relieve the financial burdens plaguing you and your family, it does not, unfortunately, cure all financial problems. There is no “one size fits all” solution that works for everyone. Generally, bankruptcy will not:

  • Eliminate certain rights of “secured” creditors that have either accepted a mortgage or hold another lien on property as collateral for a loan, such as a car notes or home mortgage. Generally speaking, if you wish to retain your home or vehicle, you must pay for it. However, talk to an experienced bankruptcy attorney, because you may be able to pay a reduced monthly amount or interest rate as part of a bankruptcy case in certain circumstances.
  • Discharge types of debts identified by the Bankruptcy Code as having higher priority or a right to special treatment, such as child support, alimony, certain other debts related to divorce, some student loans, court restitution orders, criminal fines, and some taxes.
  • Protect cosigners on your debts. If a relative or friend has cosigned a loan that is later discharged in bankruptcy, the cosigner may still be responsible for all or part of the loan or debt.

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Q. Will bankruptcy affect my credit?

A. When a bankruptcy case is filed, the petition, schedules, and other related documents become a matter of public record. Credit reporting agencies regularly collect information from bankruptcy cases to report on their credit reporting services. Bankruptcy may appear on your credit record for ten years from the date your case was filed, pursuant to the Fair Credit Reporting Act, 6 U.S.C. § 605, as opposed to the seven years other credit information may remain on a credit report.

For those with large or a high number of delinquent accounts, the credit score may already be so low that a bankruptcy may actually help. Because bankruptcy wipes out old debts, bankruptcy may free up income so that a consumer can pay current bills and obtain new lines of credit after filing bankruptcy. The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor depending on the type of credit requested.

Debts discharged in bankruptcy should only be listed as having a balance of $0 with no remaining balance owed on the debt. Debts incorrectly reported as having a balance owed will negatively affect the credit score and ability to get credit after the case is discharged. Everyone should regularly review his or her credit report, before and after bankruptcy, to resolve any disputes in debts reported with the various credit bureaus.

The three main credit Reporting Agencies are:

Experian
Profile Maintenance
P.O. Box 9558
Allen, TX 75013
(888) 397-3742
Website: www.experian.com

Trans Union
Attn: Public Records Department
555 West Adams Street
Chicago, IL 60661
(800) 888-4213
Website: www.transunion.com

Equifax
P.O. Box 740241
Atlanta, GA 30374
(800) 685-1111
Website: www.equifax.com

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Q. What happens to my house or vehicle if I file bankruptcy?

A. In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Equity is the value of a debtor’s interest in property when other liens and creditors’ interests are considered. For example, if a house valued at $100,000 is subject to a $70,000 mortgage, the remaining $30,000 is the debtor’s equity in the property.

Even if property is not fully exempt, the property may be retained if the debtor pays the non-exempt value to creditors in Chapter 13. This will not prevent creditors with security interests, such as provided by mortgages or car notes, from taking the collateral or secured property and selling it, in the event of default.

In a Chapter 13 case, it may be possible for you to pay your secured creditor the value of the property, as opposed to the balance due under the initial contract (the “full amount”) of the debt. You may also be able to pay a reduced interest rate for your personal property that is subject to a security interest, which can save hundreds, if not thousands of dollars, in the long run. In any event, Chapter 13 may be vital to give you the time necessary to catch up on back payments and to bring your loan current.

There are also several ways to keep collateral or mortgaged property in a Chapter 7 bankruptcy. One way is to keep making payments on the debt until the obligation is fully satisfied, although the creditor may accept the value of the property in satisfaction of the debt.

Reaffirmation Agreements in Chapter 7 Cases

Another way a debtor can retain their home, car, or other debt acquired prior to bankruptcy is through the execution of a reaffirmation agreement. A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. Such an agreement must generally be filed within sixty (60) days after the first date set for the meeting of creditors, and must be filed on a specific form.

If a reaffirmation agreement is filed without an attorney’s declaration or affidavit, or creates presumption of undue hardship, a hearing is required. The debtor will be required to appear in person at the hearing. The judge will ask questions to determine whether the reaffirmation agreement imposes an undue burden on the debtor or the debtor’s dependents and whether it is in the debtor’s best interest. Since reaffirmed debts are not discharged, the bankruptcy court will normally only reaffirm secured debts where the collateral is important to your daily activities.
Reaffirmation agreements are strictly voluntary. They are not required by the Bankruptcy Code or other state or federal law. A debtor may voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid reasons for wanting to reaffirm a particular debt.

Since a reaffirmation agreement takes away some of the effectiveness of your discharge, legal counsel is advisable before agreeing to a reaffirmation. Even if you sign a reaffirmation agreement, you have a minimum of sixty (60) days after the agreement is filed with the court to change your mind or rescind. If your discharge date is more than sixty (60) days after the agreement is filed with the court, you have until your discharge date to change your mind. If you reaffirm a debt and fail to make the payments as agreed, the creditor can take action against you to recover any property that was given as security for the loan and you may remain personally liable for any remaining debt.

One important thing to know is that, although a debtor may wish to reaffirm a debt and expressed that intention in the bankruptcy papers filed with the bankruptcy court, there is no way for either the debtor, the debtor’s counsel, or the court to compel a creditor to enter into a reaffirmation agreement with a particular debtor. Although failure by the creditor to enter into a reaffirmation agreement may discharge the underlying debt when the case ends, problems may later arise when a debtor defaults on the loan and wishes to obtain a loan modification, as many creditors, at that time, inform the debtor that a modification may only be obtained after the bankruptcy court approves a reaffirmation agreement. The bankruptcy court may not have jurisdiction to even consider a reaffirmation agreement by that time. Some debtors also complain that the creditor refuses to report periodic payments to the credit bureaus, thus depriving the debtor of some rehabilitation of the debtor’s credit score. The debtor must be aware of these pitfalls involving reaffirmation agreements when filing Chapter 7 bankruptcy.

In some cases where there has been fraud or other improper conduct on the part of a creditor, the debt may be challenged outright. When a debtor has pledged household goods as collateral for a loan (other than a loan to purchase the specific goods), those household goods may be kept by the debtor without further payments, when appropriate. It is very important to discuss all secured debts with your attorney, and the options that may be best for you for each debt.

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Q. What happens after I file bankruptcy?

A. When a bankruptcy case is filed, the court sends a notice to all creditors advising them of the filing of the bankruptcy, the case number, information regarding actions creditors may take, the name of the trustee assigned to the case (if filed under Chapter 7, 12, or 13), the date set for the Section 341 Meeting of Creditors, the deadline, if any, set for filing objections to the discharge of the debtor and/or the dischargeability of specific debts and instructions for filing a claim.

In a Chapter 7 case involving an individual debtor, the creditors generally have sixty (60) days from the first date set for the meeting of creditors to object to the discharge of the debtor and/or the dischargeability of a specific debt. If the deadline passes without any objections to the debtor’s discharge being filed and the debtor has met all requirements for discharge, the court will issue the discharge order.

If any objections to the dischargeability of specific debts are filed, they will be heard by the court, but will not delay the granting of a discharge with respect to other debts. An objection to discharge or to the dischargeability of certain debts is considered a separate lawsuit (an adversary proceeding) within the bankruptcy and may result in a trial presided over by the judge assigned to the case. Corporate and partnership Chapter 7 debtors do not receive discharges. If there are no assets from which a dividend can be paid, the trustee will prepare a report of no distribution and the case will be closed. If there are assets that are not exempt, funds will be available for distribution to creditors. The court will set a claims deadline and notify all creditors to file their claims. The trustee will proceed to collect the assets, liquidate them and distribute the proceeds to creditors. When the assets have been completely administered, the trustee will prepare a final report and final accounting and the case will be closed.

In a Chapter 13 case, creditors are given an opportunity to object to the plan. If no objections are filed by creditors or the trustee, the plan may be confirmed as filed. Once the plan is confirmed, the trustee will distribute the proceeds of the debtor’s plan payments to creditors until the debtor completes the plan or the court dismisses or converts the case. Upon completion of the Chapter 13 Plan, the trustee will prepare a final report, the court will issue a discharge order if the debtor has met all requirements for discharge and the case will be closed.

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Q. Will I have to go to court if I file a bankruptcy?

A. In most bankruptcy cases, the only “appearance” required of the debtor occurs at the “meeting of creditors” set by the trustee. This meeting is commonly referred to as the “341 meeting,” a reference to the section of the Bankruptcy Code which mandates that the meeting be conducted in all bankruptcy cases. The meeting is held outside the presence of the judge and usually occurs between twenty (20) and sixty (60) days from the date the original petition is filed with the court.

Although creditors are given notice of this meeting, in the overwhelming majority of cases, no creditors appear to question the debtor. Most of the time, the meeting is simply a brief conversation between the trustee (or the Trustee’s representative) and the debtor regarding the bankruptcy forms filed on the debtor’s behalf and the debtor’s financial situation.

Occasionally, if complications arise, or if there are disputes involving scheduled debts and claims, the debtor may be required to attend a court hearing. If you need to go to court, you will receive notice of the court date and time from the court or from your attorney. At The Brad Hendricks Law Firm, we generally advise clients that they may assume that their attendance is not necessary at Court unless they are specifically informed of the need to attend by a representative of the firm, as so many bankruptcy matters are purely administrative in nature and may be resolved through modifications of the papers filed with the bankruptcy court.

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Q. Will bankruptcy wipe out all my debts?

A. Although there may be exceptions, the answer is “Yes.” It is important to know that bankruptcy will not normally wipe out the following types of debts:

  • Money owed for child support or alimony;
  • Most fines and penalties owed to government agencies;
  • Most taxes and debts incurred to pay taxes which cannot be discharged;
  • Student loans, unless the court finds that repayment would be an “undue hardship;”
  • Debts not listed in the bankruptcy petition;
  • Loans obtained by knowingly giving false information to a creditor, who in turn relied on that false information when making the loan;
  • Debts resulting from “willful and malicious” harm or incurred by driving while intoxicated or under the influence of drugs;
  • Mortgages and other liens which are not paid in the bankruptcy case (although bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

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Q. How often can I file bankruptcy?

A. Although the Bankruptcy Code does not set any restrictions on the number of times you can file for bankruptcy, there are limitations on the right to receive a bankruptcy discharge of your debts.

You cannot receive a discharge in a Chapter 7 case if you received a discharge under a Chapter 7 case filed in the last eight years or a Chapter 13 filed in the last six years. You cannot receive a discharge in a Chapter 13 case if you received a discharge under a Chapter 7 case filed in the last four years or a Chapter 13 filed in the last two years. If you didn’t received a discharge in the previous bankruptcy filing, depending on why this is the case, you can file and receive a discharge without any time restrictions.

Subsequent Chapter 7 Cases

If you received your first discharge under a Chapter 7, you cannot receive a second discharge in any Chapter 7 case that is filed within eight (8) years from the date that the first case was filed.

Subsequent Chapter 13 Cases

If you received your first discharge under Chapter 13, you cannot receive a second discharge in any Chapter 13 case that is filed within two (2) years from the date that the first case was filed. If you file a second Chapter 13 case, and later wish to convert to a Chapter 7, however, the rule for receiving a Chapter 7 discharge after a Chapter 13 discharge would apply (see below).

Chapter 13, Then Chapter 7

If you previously received a discharge under Chapter 13, you cannot receive a Chapter 7 discharge of your debts within six (6) years from the date that the Chapter 13 case was filed, with limited exceptions:

  • All unsecured creditors were paid in full in the previous Chapter 13 case, or
  • You paid at least 70% of the claims in your Chapter 13 case and the plan was proposed in good faith was represented your best effort to pay your debts.

Chapter 7, Then Chapter 13

If you receive a Chapter 7 discharge first, you cannot receive a discharge under Chapter 13 within four (4) years of filing the Chapter 7 case. If you file your second case (the Chapter 13) between four (4) and eight (8) years after the Chapter 7 case, and the court does not confirm your Chapter 13 plan, you may wish to convert to a Chapter 7, the rule for successive Chapter 7 discharges would kick in and prevent you from getting a Chapter 7 discharge. Under this scenario, where the possibility for a discharge is not available, you may simply wish to dismiss the Chapter 13 case.

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Q. What are some common types of debts?

A. There are many different types of debts people can have.

Secured Debts are those where property serves as the “collateral,” and a creditor whose debt is secured has a right to take your property in full or partial satisfaction of the debt. Cars and homes are the most common examples of secured debts. When a borrower fails to make payments on a home mortgage, the lender may try to take the home to satisfy the debt. Likewise, many vehicle purchases grant the lender or finance company a “security interest” in the vehicle as long as payments on the debt are owed. The lender can take the car if the borrower fails to make payments on the car loan.

Unsecured Debts arise when you have promised to pay a person or business a sum of money, with no real or personal property pledged as collateral for the debt.

Priority Debts are those given priority in payment, ahead of most other debts. Common examples under the Bankruptcy Code include taxes, child support obligations, and wage claims that may be asserted by employees.

Administrative Debts, a type of priority debt, are created when someone provides goods or services to your bankruptcy estate, such as attorney’s fees and administrative costs assessed by a Chapter 7 or Chapter 13 Trustee, the “administrator” of your bankruptcy estate.

Certain types of debts are not dischargeable in bankruptcy, such as court fines, criminal restitution, and ongoing child support payments. To learn whether you have debts that are not dischargeable in bankruptcy, it is important to thoroughly discuss all debts you owe and the treatment of each under the Bankruptcy Code, with an attorney who is well-familiar with existing law.

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Q. Even if I am not eligible for a discharge, would a second bankruptcy help me?

A. Under certain circumstances, you might still benefit from filing a Chapter 13 case immediately after getting a Chapter 7 discharge, even if you are not eligible for a Chapter 13 discharge. This is often referred to as a “Chapter 20” bankruptcy, although there is no actual Chapter 20 in the Bankruptcy Code (7+13=20).

There are several reasons why debtors may try to use a Chapter 20 strategy. The objective is not to discharge any debt, but to obtain more relief than filing for Chapter 7 or Chapter 13 alone.

One common reason why debtors will file a “Chapter 20” case is to discharge unsecured debts through the Chapter 7 case, and then use the subsequent Chapter 13 case to cure mortgage arrearages that might have accrued on their house or mobile home over an extended period of time. It may also be helpful to pay a debt owed to the Internal Revenue Service or the Arkansas Department of Finance and Administration over time, rather than all at once. Whether you can get any benefit from a “Chapter 20” depends on the personal circumstances of each case and the case law applied by the Bankruptcy courts.

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Q. Can I buy a car after filing bankruptcy?

A. One of the most frequently asked bankruptcy questions is “How can I get a car loan after filing bankruptcy?” The answer depends on several important factors, such as whether the bankruptcy has already been discharged, or whether a debtor filed Chapter 7 or Chapter 13 bankruptcy.

Discharged / Completed Bankruptcies

If the bankruptcy case has been discharged, the debtor will have more lending sources available than if it is still open. Even though there are more lenders willing to give a debtor a loan, it is extremely important that the debtor visit a dealership that has the right lending sources in place.

Getting a Car Loan While in an Open Bankruptcy

Obtaining an auto loan in an open Chapter 13 bankruptcy requires more work on the part of the debtor. There is no such thing as an “instant approval” when a Chapter 13 case is pending. The debtor must check with the trustee or attorney and let them know that you want to buy and finance a car. Every lender that approves people in open bankruptcies requires an Order to Incur Debt or an Authorization to Incur Debt. This is a legal document obtained from the bankruptcy trustee. It states what your maximum allowable payment is and that the new loan will not be part of the open bankruptcy. As long as the new car you plan on purchasing is within your budget, most trustees have no problem approving your request, which must then, in turn, be approved by the court prior to the completion of the sale.

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Q. What else should I know about filing bankruptcy?

A. Other important things to know about filing bankruptcy, while not exhaustive, include:

Utility services

Public utilities, such as the electric company, cannot refuse or cut off service because a bankruptcy case has been filed by a subscriber or customer, although the utility can require a deposit for future service and bills which arise after bankruptcy is filed must be paid.

Discrimination

Employers and government agencies may not discriminate based on the fact that a bankruptcy proceeding has been initiated by a debtor. Government agencies and private entities involved in student loan programs also cannot discriminate based on a bankruptcy filing.

Driver’s license

If driving privileges have been suspended due to the failure to repay a debt, such as court-ordered damages caused in an accident, bankruptcy may permit the reinstatement of all driving privileges.

Cosigners

Without question, it is important to know that a bankruptcy proceeding may have a negative impact on a cosigner. If someone has cosigned a loan for a debtor who later files for bankruptcy, the cosigner may have to pay all or a portion of a debt. If you file under Chapter 13, you may be able to protect cosigners, depending upon the terms of your Chapter 13 plan.

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Q. How can I pay for my bankruptcy case?

A. For any costs you would be required to pay directly to The Brad Hendricks Law Firm for bankruptcy, our firm accepts cash, a cashier’s check, or a money order. We cannot accept a personal check nor a credit card for any bankruptcy payments.

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Our Bankruptcy Staff

Caroline Lewis serves as the firm’s Managing Bankruptcy Attorney. She has been practicing law since 2002 and joined The Brad Hendricks Law firm in January 2009. Her practice is primarily dedicated to bankruptcy law and assisting those who find themselves in dire financial conditions, but she also offers services in the areas of family and personal injury law.

Robin Morgan has worked as a bankruptcy paralegal for over fifteen years. She began her career as a paralegal on the creditor side of bankruptcy, but has been working for debtors since joining The Brad Hendricks Law Firm in 2008.

Gloria Witcher joined The Brad Hendricks Law Firm as a legal assistant in March 2014. Originally hired as a general secretary, Gloria soon joined the bankruptcy department along with performing her other administrative duties.

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