Welcome to our Bankruptcy FAQ page. Although the answers you find here specifically reference Kentucky Bankruptcy Law, the bankruptcy law of your state is probably the same or very similar. This is because bankruptcy codes are ultimately the province of the federal government. However, your State’s exemption laws govern the property that you keep. We invite you to continue reading to learn more about the range of exceptions in the questions and answers below.
For a convenient chart that explains the exemptions for most states, we recommend that you refer to the bankruptcy manual (see below.) We also provide exemptions for the other states with an additional chart that we mail to you. In addition, please continue to send your questions to us via e-mail because we want to add them to this ever-growing list of FAQs. It is, of course, our wish that you find this information helpful. However, these Bankruptcy FAQs (Frequently Asked Questions) are no substitution for legal counsel.
We also ask that you not view this as legal advice because each individual case is vastly different. Rather, these are the “standard” answers to “common” questions. Furthermore, if you have a question about your case, you need to ask your attorney to get an answer based on the facts and particular circumstances of your case.
The Top 5 Bankruptcy FAQ • Questions and Answers
Q1. We stand to lose our home and car. We just don’t know whether or not to keep it or let it go.
Whether or not to keep a home must always be a financial decision, not an emotional one. For instance, you can replace your car at a normal interest rate about a year after a Bankruptcy discharge. The same is true with a home three years after the foreclosure sale or two years after discharge under FHA, HUD, and VA rules.
⎆ You Now Have Choices to Make
Unfortunately, many often find themselves buying more home or car than they need. A wise man once said, a 2-year-old Ford might not look as nice as a Lexus, but it lasts the same miles, serves its purpose, and cost thousands less.
It’s common to see someone paying $200,000 for a home that is worth only $150,000 or less. Stop and think about that for a minute—the $50,000 difference might fund a college degree or retirement. But, if you owe more than the home is worth, then you are probably better off letting a home go back.
⎆ How Long Does it Take to Foreclose?
Nationwide, the average time it takes to foreclose is about 630 days. If a person answers a foreclosure and issues discovery, it takes much longer. During that time, people often live in the home without paying the mortgage, taxes, or insurance and save thousands by staying in the property.
Moreover, it is difficult to find a lender that refinances a home with negative equity. If your interest rate is much higher than normal, you might be much better off letting the home go back.
⎆ Which Chapter? 7 or 13?
If the home has a second mortgage, Chapter 13 might be a better option. First, Chapter 13 can strip away a second mortgage, which is something Chapter 7 cannot do. It isn’t unusual to see a person better off by filing a Chapter 13 than Chapter 7 if they are stripping away the second mortgage in Chapter 13. Additionally, Chapter 13 discharges more debt than Chapter 7, and might significantly lower your monthly payments.
Remember, that if the home or auto doesn’t meet your needs or if it is too expensive, you can replace it. Cashing in your retirement or mortgaging your home often shifts the burden of retirement to your children or other taxpayers. However, the bank that approves a predatory loan or car sale should bear the burden of the bad debt, not the public.
Q2. Should I file for Bankruptcy?
A person should file Bankruptcy if, and only if, he or she can’t pay bills as they come due or is about to lose property or have property attached by the Court. A Chapter 7 bankruptcy normally has less impact than a foreclosure or repossession on credit.
Chapter 13 will takes 3-years if your income is less than the average income, or 5-years if above average. But, than Chapter 7 has more powerful tools and may cost less in the long run if you are stripping a second mortgage.
⎆ Keep More of Your Property by Filing Bankruptcy
Very few people lose property when they file for bankruptcy. For 2011 in Kentucky, you are allowed to keep about $3,450 equity in a car, $10,775 in personal household goods, $21,625 in a home, and at least $1,000 in any property that you choose in a general exemption plus one-half of the unused portion of the home exemption. The exemptions are adjusted in April every year. For married couples filing jointly, these exemptions are doubled.
To stop foreclosure in Kentucky with Chapter 13, you only need to cure the arrearage within a reasonable time period, and you may take up to five years.
⎆ The Debt You Can Pay in Chapter 13
Only seven magical items can be paid in Chapter 13 but not discharged: child support, alimony, taxes less than 3 years old, federally guaranteed student loans, debts due to fraud, debts due to drunk driving, debts due to intentional injuries, and criminal restitution. There are exceptions to even these 7; for instance, student loans can be discharged if they are an undue hardship. When in doubt, always list the debt when filing because you might be able to add it to your Bankruptcy due to an exception. If you have other questions about filing a Kentucky Bankruptcy, e-mail us at Office@Bankruptcy-Divorce.com or call at 502-625-0905.
Q3. What does it cost to file for Bankruptcy?
Court costs are about the same, $310 for a Chapter 7 and $285 for a Chapter 13, plus postage for sending the plan to the creditors ($25), so both filing fees are about $310. Uncontested Chapter 7 Attorney fees at our office will run about $1,000 for a single, $1,200 for a couple, plus any filing fees, but expect fees to increase. They have been the same for 8 years. About 5-10% of the cases may require additional work for a motion to redeem, strip a judicial lien, etc.
Chapter 13 attorney fees are set by the Court, and the Court is presently paying about $2,750 in Western Kentucky for Chapter 13 through confirmation and the schedule of allowed claims. This is paid to the attorney as you pay the Court and normally only decreases what is paid to unsecured creditors.
Q4. What happens when I file?
When you file a Bankruptcy, a Court order called a stay goes into effect immediately, stopping all collection activity. This includes stopping foreclosures, attachments, garnishments, and creditors from calling you. The sooner you come into the law office, the sooner you can get relief—and the more you can save from creditors. You will have a 341 hearing within about 4 to 6 weeks after the Bankruptcy is filed.
When the Bankruptcy is finally over, a discharge is issued. This is a final and permanent order that permanently stops all collection activity and declares the debts to be non-collectible. Bankruptcy does not normally get rid of a security interest that you gave to a creditor, such as a mortgage or a standard car lien, but it can destroy or modify some mortgages and liens. It makes you no longer liable for the debt if you successfully get the discharge.
Q5. I live in Pikeville (Eastern District). Can I file in another District (such as Louisville in the Western District)?
A lot of this answer depends on whether or not you have real property and if you are living in the Western District at the time of filing. Procedural rules vary from district to district making it more or less difficult, expensive, or time-consuming. It normally costs less to file Bankruptcy in the Western District, etc.
Jurisdiction and Residence are based on your intent to live in a place—so, if you say you live in the Western District and you have substantial contacts there such as you live with family, you vote there or have a driver’s license with a local address, you probably do reside there.
Many people live in an area because of school or work but have their real contacts elsewhere. For instance, a serviceman or student in Alaska does not generally lose his right to file in Kentucky if they are from here. If you move to the Western District from another state, the other state’s exemptions may apply if they are lower.
Bankruptcy FAQs • The Other 70+ Questions
1. Can I plan my Bankruptcy?
Of course! Good planning is why you want to read this manual. Planning allows you to save more money and property and gives you a workable budget for success. For instance, you may wish to delay filing your Bankruptcy to ensure that your taxes are over 3 years old and dischargeable. This is just like taking proper tax exemptions when you file a return. There is nothing illegal or improper with properly taking exemptions. But you can become too greedy in converting assets. Always involve your attorney in planning your Bankruptcy. Waiting a few months until your tax debt becomes bankruptable is acceptable. However, converting large amounts of corporate assets into your retirement, or going on a spending spree with credit cards just prior to filing isn’t.
2. Which bankruptcy is right for me: Chapter 13 or Chapter 7?
Chapter 13 is like a bill consolidation loan, and you normally file it to keep property, discharge or control certain debts, and stop foreclosures. In addition, Chapter 13 discharges a wider variety of debts while requiring you to budget. By learning to budget, financial difficulties are less likely to reoccur. Chapter 7 is generally used to wipe out unsecured debts and surrender property you don’t wish to keep. Both stop garnishments and creditor harassment. If you earn more than the average wage for your state and size of your family, you will often be required to file a Chapter 13 due to the means test.
⎆ Chapter 13 is Popular for Good Reasons
Chapter 13 cases are becoming more popular. Over 95% of all Chapter 13 cases used to fail because they became unaffordable in Kentucky. But now, 10% and lower repayment plans are often approved in Chapter 13 cases if that is all the Debtor can afford. Chapter 13 plans are now more successful, especially if you ensure you include often-overlooked expenses in your budget. See our website for a list of commonly overlooked expenses.
Often an attorney may want to file a Chapter 13 because he will earn more than he would in Chapter 7. Usually, the only times you want to file a Chapter 13 are for the following reasons:
- When you have already filed a Chapter 7 and can’t yet file another Chapter 7.
- Your asset’s value is such that Chapter 13 is necessary to keep the property.
- You have certain non-dischargeable debts that require repayment in Chapter 13.
You may have to file a Chapter 13 if you have so much disposable income (after you pay normal monthly living expenses) that you can repay something to your debts. Chapter 13 can no longer be used to discharge certain unusual debts such as trust taxes. But it has always been used to repay income taxes less than 3 years old, child support, student loans, or to protect cosigners.
⎆ Chapter 13 Might be the Right Choice for Debtors with Valuable Assets
The fortunate thing about virtually all Chapter 7 cases is that the Debtor’s assets are normally exempt, so there are rarely any assets to liquidate. Married couples with valuable assets, such as over $40,000 in equity for a home or over $7,000 of equity in the cars, may want to choose Chapter 13. Please note, these rates are for Kentucky.
Each state might have different rules for what property can be kept. For instance, Kentucky uses the Federal exemptions. However, Indiana allows you to keep less property while Florida and Texas allow for more.
3. Why file Chapter 7?
If you have substantial unsecured debts, little equity in the property, and an average or less disposable income, you may want to file a Chapter 7. You may also want to file a Chapter 7 if you want to surrender the property and not owe for it. You can usually keep all your property in Chapter 7 because most Debtors lack any substantial equity in any property that exceeds the exemptions allowed.
4. Why file Chapter 13?
You might want to consider filing Chapter 13 if one or more of the following apply to your situation:
- You have secured debts or get threats of foreclosure or repossession.
- Your last Chapter 7 filing is less than 8 years old.
- You wish to protect a cosigner.
- Some of your debts are not dischargeable in Chapter 7 but are payable or dischargeable in Chapter 13.
Taxes and child support (priority debts) can be paid first in Chapter 13, before secured creditors. This gives you the advantage of not losing a car or property but still have all of your payments go to the IRS or child support at the start of the case. If a debt has to be paid for a term longer than the plan (such as mortgages or student loans), the Debtor can pay full payments directly. This may also allow the Debtor to bump up student loan payments and nearly pay off a student loan during a Chapter 13 at the expense of unsecured debt.
5. Can I convert from Chapter 13 to 7 or from 7 to 13?
Yes, Chapter 7 or 13 can be converted. There is an absolute right to dismiss Chapter 13. Conversion of Chapter 13 to Chapter 7 has a lower level of scrutiny. Dismissal of Chapter 7 or conversion of Chapter 7 to Chapter 13 is only with permission. Very few people convert from a 7 to a 13 unless they have been audited by the Trustee and caught with improper transfers, excess property, or excess disposable income. If you get caught, it is generally too late to convert because the panel Trustee earns a 25% fee from property he can locate, seize, and sell for the benefit of creditors.
If you file a Chapter 13 you have a good chance that you will have to convert from a 13 to a 7. Over 3-5 years, you are likely to miss payments and have a Chapter 13 dismissed (or have to re-file). In Chapter 13, you will have to file an annual budget in our district and lose your income tax refunds if the plan is less than 100%. Many Chapter 13 cases are never finished and are converted into Chapter 7 cases. If you are close to completing the plan, you may be granted an early hardship discharge, but there are 3 factors that the court considers in any application for an early discharge that must be proved. Primarily the Debtor must show that the disability to complete the plan was not his fault. Plans can also be later modified if incomes change.
6. What is Chapter 20? What is Chapter 26?
Some people file a Chapter 7 to wipe out unsecured debts and then file a Chapter 13 to keep a property from foreclosure. This is jokingly referred to as a “Chapter 20”. However, it saves the Debtor money by ensuring that only the mortgage is repaid in later Chapter 13. Since the Debtor just got a discharge in Chapter 7, there is no need for a second discharge. Filing a “Chapter 20” can be an intelligent and affordable way to file a Chapter 13. Filing a Chapter 7 and then a Chapter 13 to obtain the benefits of both is very effective in stopping a foreclosure. Although you have the right to dismiss a 13 after you cure the arrears, you may not want to dismiss and then have to face unsecured creditors.
A “Chapter 26” refers to filing back-to-back Chapter 13 cases. You would do this to pay debts that can’t be paid in 5 years by just one Chapter 13. In a sense, you are “extending” your repayment time by filing two Chapter 13s to handle taxes or student loans. This may stop wages or property from being attached and allow you to obtain freedom from the debt by waiting for a disability discharge of a student loan or currently noncollectable status of an income tax debt.
7. How long will Bankruptcy take?
It will take about 3 to 4 months for Chapter 7 to be final. (You will get a letter within 10 days of filing, telling you the time and date of the 341 hearing and that you are required to take the second class (Debtor education). A hearing will be held about 5 weeks after you file. Chapter 13 normally takes 5 years, but if you earn less than the average income some districts will consider a 3-year plan.
8. What are the most common mistakes I can make when filing?
Not showing up for your hearing and not listing all of your debts. Fail to show up at the hearing, and your case may be dismissed. Fail to list a debt, and you may have to reopen your case after discharge to add it, with considerable cost and time spent. The best policy is to list all debts and assets. List every debt, even if you think it is non-dischargeable. It may be discharged anyway. You may wish to list large utilities, but you may be required to make a deposit equal to one month’s service if you do discharge a utility. The cable is not a utility.
9. How do I qualify for Bankruptcy? Can I not be approved?
You qualify for Bankruptcy if either your outgo exceeds your income or your liabilities exceed your assets. If you don’t qualify, we will tell you when we type up the Bankruptcy. It is very rare not to qualify. In my first 15 years of practice, I had one person not qualify for a Chapter 7. You only have to be a US citizen, reside in the state you file in, and not have filed within the designated time period (you can’t file two Chapter 7’s within 8 years of each other).
10. What if the Court does not approve my Chapter 13 or Chapter 7?
If there is anything wrong with your Chapter 13 or Chapter 7 bankruptcy, it can normally be easily corrected by amendment. Of course, it is less costly and time-consuming to do it right the first time. If you earn so much money that you can afford a Chapter 13, you will be forced to convert it from a Chapter 7 to a Chapter 13. Repayment plans are often modified. Occasionally a case will be dismissed because of fraud, but not being approved is very, very rare.
11. How often can I file?
For Chapter 7, you may file eight years after your prior Chapter 7 was discharged (prior to 10/2005, the time limit was six years). However, for Chapter 13, you may file two years after a prior Chapter 13 discharge. Additionally, you can file a Chapter 7 four years after a Chapter 13 discharge. However, you can only have one Bankruptcy going on at a time.
12. If I file does it mean my old debts are erased from my credit report?
No! What is reported is that you had a debt and that a bankruptcy was filed. Bankruptcy does not give you a good credit record or “repair” your credit record automatically. You repair your credit by paying your debts on time after the Bankruptcy and by deleting inaccurate information from your report.
13. Can I file without an Attorney?
Yes. You can file a Bankruptcy yourself. This is called “filing pro se”. You can also do dentistry on yourself, but we don’t recommend it. Doing your own case is a very bad idea. Remember in Chapter 13, attorney fees are paid out of the money that the court deems is reasonable for you to pay to all creditors. If you try to save money by filing pro se, the amount of money paid to creditors simply increases. You have saved nothing, but you have caused yourself more work and lost the expertise of a qualified attorney to help you plan and process the case. This book alone won’t give you the 20 years of experience and training you need to file. Use this manual to educate yourself, but find a good attorney to handle your case.
There are also other problems if you file pro se. If you file a reaffirmation and represent yourself, it must be approved in a hearing by the Judge, and that will mean extra hearings and time for you. Consider the time and risk involved. You often lose far more in Court than what the attorney would have cost. Plus, there is all the extra time and effort on your part.
14. What about a Bankruptcy Mill?
Some firms have one experienced attorney that rarely meets clients. To give you quality representation the attorney has to have experience, knowledge and spend time meeting with you to analyze your needs. Some firms file thousands of cases by spending exorbitant amounts of money on advertising and then hand your case to a paralegal or a junior attorney with little experience. However, if you do your research you will discover that these “bankruptcy mills” normally do not charge less for their services. You may be better served by hiring an experienced attorney who will personally handle your case.
Many people have lost thousands of dollars through intentional scams or just plain poor work. Non-Attorney Bankruptcy petition preparers are barred by law from providing you with any legal advice. In enacting legislation governing bankruptcy petition preparers, Congress stated: “These preparers lack the necessary legal training and ethics regulation to provide [legal advice and legal services] in an adequate and appropriate manner. These services may take unfair advantage of persons who are ignorant of their rights both inside and outside the bankruptcy system.”
15. Are you a real Attorney?
Yes. In fact, I have 20 years’ experience in filing Bankruptcy cases that number in the thousands. I also worked for banks and financial companies in addition to being an assistant attorney general assigned to the tax department. You will also benefit from my services because I personally prepare every case and never assign you to a secretary or paralegal to prepare the petition.
16. How much do you charge?
We charge a flat fee of $1,000 for doing a personal and $1,200 for a joint uncontested Chapter 7 Bankruptcy. Court costs are $310. Your total cost as an individual is about $1,400 including credit counseling and $1,600 as a couple.
Chapter 13 Court costs are $285 plus $25 for mailing. In Kentucky and most states, the attorney fees are normally set as a flat fee. There is no shopping for a lower attorney fee in a Chapter 13. Attorney fees in Chapter 13 mean less is paid to unsecured creditors.
17. Can I pay you in payments?
Filing fees must be paid before we file any petition. Filing fees can be paid to the court in installments, but our policy is to not do that. If you pay the filing fee in payments you are more likely to have the case dismissed. For Chapter 13, you only need to pay the filing fee before we file the petition.
18. How do I get to your office? Do you have an office in Lexington?
No, we don’t have an office in Lexington, but we are only about an hour away from Lexington and Covington and only 2 hours from Bowling Green or Owensboro. Take I-64 to Louisville, and then north on the Hurstbourne Exit. We are at 800 Stone Creek Parkway, Suite 6, 40223 just behind the Barnes and Noble Bookstore on Hurstbourne Parkway in the office condos.
19. What paperwork do I need to bring to my attorney?
There is a list of required documents on our website you may download. Bring the names, amounts, account numbers, and the proper addresses of all of your creditors if you can’t input the debts on our website. Credit bureau reports have addresses on them. We have the ability for you to input your information on our website, but we will still need your last two years of tax returns, last six months of pay stubs and bank statements, and copies of your car titles, deed, and mortgages. See our website for audios, PowerPoints, and manuals.
20. How can I get a copy of my credit report?
You can get a free copy of your report at www.annualcreditreport.com or at 1–877–322–8228. Please don’t pay for it unless you recently got one within the prior year. You can get a free credit report if you have been denied credit, are unemployed, are a victim of fraud, or are on welfare (or if you live in Colorado, Georgia, Massachusetts, Maryland, New Jersey or Vermont). To get one for a small fee without going through a “middle man” by contacting any of the 3 major reporting services below. They may charge between $3 and $8.50 depending on your state of residence.
- Experian (TRW) at 1-888-EXPERIAN (1-888-397-3742) allows you to charge your credit report to your Visa or MasterCard over the phone.
- Trans Union at 1-800-888-4213, or write to Trans Union Corporation Consumer Disclosure Center, P.O. Box 390, Springfield, PA 19064-0390
- Equifax at 1-800-685-1111 or write to Equifax Information Service Center, P.O. Box 740241, Atlanta, GA 30374-0241. For $8, you can get an immediate report online from Equifax.
If you decide to write to any of these services, be sure to include your: name, address, phone number, previous addresses for the past two years, social security number, birth date, employer, signature—and be sure to include your payment. (You’ll have to call to get the payment amount.) Proof of identity, such as a photocopy of your driver’s license, will also be required.
21. Can I file jointly with my spouse? Does my spouse have to file or sign if I want to file individually?
Yes, you can file jointly or separately. Sometimes a spouse may want to file separately to delay a foreclosure even longer. The first spouse files the first Bankruptcy and delays the foreclosure 6 months or more, and then the second file just prior to the sale and the second Bankruptcy delays the foreclosure an additional 6 months to a year or more.
Your spouse doesn’t have to file with you, but if most of your debts are joint debts, he or she may want to file with you. There are a few reasons for a spouse to file if the debts are not in their name. If you are filing a Chapter 7 and the bills are also in your spouse’s name, he or she should generally file. (Cosigners are protected in a 13 with 100% plans, but are not in a Chapter 7.) There is often a minor additional charge for a spouse filing, but it is far less than being charged for a second case.
22. Will it affect my spouse’s credit? Is he/she responsible for my credit cards if he/she is an authorized user?
No, filing will not affect your spouse’s individual credit, but if he or she is jointly responsible for any debt that is not paid, that will affect him or her. The fact that you filed Bankruptcy does not appear on a spouse’s credit report unless he or she also files Bankruptcy.
Unless your spouse has signed to be legally responsible, they are not responsible. Many credit card companies will argue that he/she is responsible, but this is simply not the case. Collectors are often paid a commission, which can cause abuse. Often, collectors will submit “no pay” statements to credit agencies for the spouses of bankruptcy clients. This can easily be corrected by filing a dispute with the credit reporting agency demanding that the collector show proof of liability.
23. Will my cosigners be protected?
Cosigners are protected only if Chapter 13 pays the full amount of the co-signed debt. If the plan pays the debt completely, the cosigner is protected, but it will be listed in his or her credit record as being paid late. The creditor may ask the cosigner for any remaining portion of the debt if it is not paid completely. In Chapter 7, the cosigner will have some small protection regarding the collateral during the proceeding, but only because the creditor can’t go against the property of the estate. After Chapter 7 is over, the creditor will proceed against the cosigner personally.
24. Will it affect my business if I file a personal Bankruptcy?
First, if you completely own the business, the business is merely your asset. Also, if it has substantial value, it belongs to the court like any other asset. However, if the business is co-owned, such as a partnership or corporation, then it becomes almost impossible for creditors to reach assets for your personal debt. Normally, a business that is failing and is not part of a corporate Bankruptcy merely dissolves. In addition, if your business files for Bankruptcy, it generally doesn’t affect you unless you are personally responsible for the debts of the business.
25. Can Bankruptcy stop foreclosures, wage assignments, help me get my license back from an uninsured accident, stop evictions, a judgment, or remove a lien?
26. What will happen to my bills?
When you file bankruptcy, the court orders a stay that keeps creditors from legally collecting from you. At the end of the case, a discharge is entered as a permanent court order. Then, the creditor “charges off” the debt and gets a tax deduction for the loss. The bill is not paid, and the debt shows up as a Bankruptcy charge-off on your credit report.
Some creditors attempt to get around the law and will continue attempts to collect after the Bankruptcy is filed. They can be sued for this, but you need to prove they violated the order. One of the best methods is to record their call and then surprise them in Court with it when they deny ever making the call. Most creditors that ignore the law will never send you letters or put anything on paper after you file, but they may make phone calls hoping you pay or sell the account.
27. What if I keep getting bills?
You will continue to get some bills from bankrupted debts after you file. What happens is that the Bankruptcy Court sends out notices to the addresses that you give them (that is why correct addresses are so important), but some creditors never get these notices and continue to bill you. You should make copies of your hearing notice. If you get a bill from a creditor, send them a copy of the bill and the notice. Some creditors will continue to send bills even if they receive notice. It may be that their computer can’t stop sending out the bills, or they may simply be ignoring the stay hoping that you will pay anyway. We can file a motion for contempt with the Judge, and we may also be able to sue for a violation of the Fair Debt Collections Practices Act.
28. Do I have to pay my bills during Chapter 7 or 13?
No. Don’t pay any bill after you file a Chapter 7 until you have negotiated with the creditor to keep the property. Don’t pay any payment in Chapter 13 unless it is the regular monthly mortgage payment or car payment, and the 13 was filed to retain that property and catch up on the arrearage.
⎆ A Stay is a Federal Court Order to Stop
A stay is a Federal Court order to stop. If the item is secured, your overdue payments will continue to add up while you don’t pay on the item. However, the creditor can’t take the collateral until the stay is terminated. If no reaffirmation is filed within 45 days after the Bankruptcy is filed, the stay automatically terminates and the bank can take the car.
⎆ A Creditor Can File a Motion to Terminate the Stay
The creditor may also file a motion to terminate the stay after the Bankruptcy is filed. Bankruptcy stops your obligation to pay, but the creditor still has a lien and rights in the property. Bankruptcy can affect the liens of some creditors.
⎆ Give Yourself Time to Decide on Repayment, Redemption, or Surrender
You often quit paying for items when you file to give you time to decide on repayment, redemption, or surrender. I rarely have a bank refuse to agree to repayment, but you don’t want to make payments if they aren’t going to let you keep the property. Also, please note that signing a reaffirmation makes you liable for any deficiency if it gets repossessed later.
In rare cases, with people who are never going to repay, the bank may refuse to reaffirm. Some credit unions may also refuse to reaffirm a car or mortgage unless you also repay their credit cards. In cases like this, you may want to redeem property instead.
These are good reasons not to make payments just before or after you file. Instead, take an adequate amount of time to negotiate your options because you don’t have to be caught up on your payments to reaffirm.
Chapter 13 can also be filed to force creditors to allow you to keep the property, so they often try to negotiate with you to cure arrearages over time. Again, their idea of curing arrearages over time is not to your advantage.
29. Who notifies the creditors and bill collectors?
After the bankruptcy petition is filed, the Court mails a notice to all the creditors listed in the schedules. This usually takes a week.
30. Do I have to go to court?
You have to attend a hearing presided over by a bankruptcy trustee. This hearing is called the 341 Hearing (Meeting of creditors). At this hearing, the Trustee (who is an Attorney or CPA) will ask questions, under oath, regarding the content of your bankruptcy papers, assets, debts, and other matters. It is very much like a deposition. It is not a trial. If you can’t attend (example: if you are disabled or in military service overseas), you can answer the questions by Affidavit. The Trustee is not the Judge. He is there to take any assets from you, if he can, check accuracy of paperwork and determine what Chapter your case should be. The Trustee represents the banks—not you.
31. Where is my 341 hearing?
Your 341 hearing is always at the Federal Court in your district. In Louisville, your hearing will be on the 5th floor of the Federal Gene Snyder Courthouse at 6th and Broadway. Use the elevator on the 6th street side, next to the Courier-Journal newspaper building. If your paperwork is done correctly, your hearing will only last 5 minutes. Just bring yourself, proof of insurance on your car, a picture ID, and proof of your social security number (social security card, W-2, etc.) to the hearing. Dress appropriately.
In Lexington, the hearings are at 100 Vine St. Most Courts require your attorney to bring a second set of documents.
32. What do I wear to the hearing?
Don’t wear cut-offs, jeans with holes in them, or sandals. Suits are not mandatory but dress properly for a hearing in Federal Court. Children are not supposed to be in the hearing room. Do not borrow and wear flashy jewelry. This is not the time to brag about how rich you are or how much you own. The trustee is looking for assets to take from you. He is not your friend. He represents the persons you owe. You must report what you own and its value, but don’t brag about your income and how much your car is worth—especially if it is worthless.
33. Do you show up with me at the hearing?
Your attorney will personally appear! Well, unless he or she has 10 offices in 3 states with 12 attorneys. Large firms will send someone, often someone you never saw before. We take care of you, and assist you through the process. We don’t just file paperwork. However, there is work you must do such as supply documentation. If you read this manual, you should be able to make the most of your bankruptcy.
34. When should I file tax returns if I am going to file bankruptcy?
If you are considering filing bankruptcy, you must file your tax returns (unless you didn’t have any income and were exempt). The court may dismiss your case if you don’t file returns and we normally won’t file the case until you supply them to us. The tax returns and other documents are due to the Trustee within 2 weeks after your Bankruptcy is filed.
If you can get your refund before you file, and spend it, you will keep your refund no matter how much it is. It is very rare for persons in Kentucky to lose a tax refund because the exemptions are so large. But in Indiana, they are commonly lost because the exemptions are so small.
If you get your refund after you file Bankruptcy, and the refund is over the exemption, you may lose part of your refund. File a quick refund if you have to. Some Indiana Trustees start claiming tax refunds in November or prorate them.
35. What will happen to my house and car?
Usually, you keep them. If your equity is less than or equal to your mortgage and exemption, you keep the property. You are allowed to keep a certain amount of property in Bankruptcy. When we prepare your Bankruptcy, we will tell you if you are at risk of losing the property. At the time of filing, all property that is not exempt belongs to the Court. The idea is to exempt it all so that you keep it all.
Of course, the law concerning what property you can keep varies from state-to-state. We provide you with the exemptions in the manual and on our website. If you are in another state, please beware that many of the websites have the amounts wrong, and the amounts may not be up to date. We keep the amounts for our state (Kentucky) up to date.
36. Do I have to keep up the insurance on my vehicle? Does this affect my rates or will they drop me?
If you fail to keep full coverage insurance on your vehicle paid for three months, the creditor may automatically pick up your vehicle, according to the local rules in the Western District of Kentucky. Other jurisdictions have similar rules.
37. Can a creditor be forced into a reaffirmation or agreement to allow me to keep my property in Chapter 7? Can a creditor be forced into redemption?
No, a creditor can’t be forced into a reaffirmation, mortgage modification, or workout. A creditor can be forced into redemption which allows you to purchase the vehicle or other personal property from him. Redemption is an agreement to pay the bank what the security is worth in one lump sum. They cannot refuse the redemption after the Judge orders it.
If the bank repossesses a car, it will usually take a loss from selling the vehicle at an auction. However, since lenders have mortgage insurance, they rarely modify a mortgage because they can rely on mortgage insurance to cover the default. With mortgage insurance, why would a bank modify to a lower rate, or reduce the principal amount of the loan?”
If they have started a foreclosure, the filing of the Bankruptcy stops the foreclosure, but in Chapter 7, the bank may file a motion to terminate the stay with the Bankruptcy Court and ask to foreclose anyway. If the bank is adamant that it wants the house or car back, it may file a motion to terminate the stay in Chapter 7 and take a loss.
38. Can I choose which creditors I repay?
Yes, you can pay one creditor, but not another. You can keep one car, but let the other one go back.
39. Can I revoke a reaffirmation?
Yes, but it must be revoked within 60 days of the 341 hearing or before discharge, whichever comes first. It should be revoked in writing and sent by certified mail so you have proof.
40. I want my house or car to go back. Will I lose it immediately?
No. You will normally have until at least the 341 hearing to return your car and owe nothing. Use that period of time to look for another vehicle you can afford.
If you choose to let your house go back, you will normally have at least a year to live in it after you stop making payments. The shortest period for a foreclosure is about six months, and we have seen it take up to 7 years. Consider filing an answer to foreclosure to stay in the home longer and filing discovery to remain in it even longer.
Remember, a foreclosure will normally do more damage to your credit than bankruptcy. Filing a Chapter 13 to catch up on your payments is one way to keep your home. The only good reasons to let your house go back are 1) you have a large amount of negative equity in it, 2) a bad mortgage or 3) that it is an overwhelming burden.
41. Will I lose my 401(k) or retirement fund?
Your retirement is completely exempt and protected under Kentucky law. Other states have other exemptions to protect retirement plans. However, you should talk to a qualified Attorney to get his opinion. The United States Supreme Court has held that pension plans, 401(k) plans, and other “ERISA-qualified plans” are generally excluded from the Bankruptcy Estate under 11 U.S.C. sec. 541(c)(2).
Unlike 401(k) plans, IRA accounts are not ERISA-qualified plans. However, in Kentucky and most other states, an IRA may be excluded from the Bankruptcy Estate or otherwise exempt because of a state statute. Some Bankruptcy Court Judges have held that an IRA may be partially exempt under 11 U.S.C. sec. 522(d)(10)(E).
42. I have a personal injury lawsuit—will I lose those funds?
In Kentucky, you can keep up to about $21,625 as an exempted amount of a personal injury lawsuit that you have pending. If both are injured you may keep $43,000. Other states have different rules.
43. The finance company took my household goods as collateral. Do I have to turn them over?
It is possible that you may be able to avoid such liens, if they are old enough and if you have not borrowed within a certain time before filing Bankruptcy. Also, consider a redemption.
44. I was just sued and they have just attached my paycheck or bank account. What can I do?
If a property was taken from you just before filing Bankruptcy, and it was over $600, it can normally be gotten back. Liens on a property that were from a lawsuit can be removed. Garnishments and foreclosures can be stopped. The sooner you seek help, the sooner you can stop the procedure. It is important to seek help as quickly as possible.
45. Am I liable for income taxes on debts discharged or property taxes for items surrendered in bankruptcy?
People often give up cars and then the auto is sold in another state. The car property tax bill will continue to be sent to the Debtor, even though he surrendered property. To correct this in Kentucky, you can file an affidavit with the County Clerk’s office to correct the matter, proving the Debtor did not have the car after discharge. If you kept the auto then you are liable.
Property taxes are statutory liens on the property, and the new home or car owner will have to pay the property tax to obtain a clear title. There is no property tax if you discharge a debt in bankruptcy before the lender takes the write off for the debt. You must file bankruptcy before a foreclosure sale to prove you didn’t have the obligation when he writes off the debt.
46. If the trustee doesn’t want the property, can I have it?
Yes. But if you hide an asset, you cannot use the exemption on the property. You have committed fraud and you lose hidden assets and the right to claim any exemption to keep it. If you are on a title, claim it.
47. How long do I have to repay in Chapter 13?
Kentucky state rules require that you can take up to 5-years to catch up on overdue payments to stop a foreclosure or repossession.
48. What happens if I quit making my payments in Chapter 13?
Your Chapter 13 will be dismissed from Court, and you will go back to owing the original debt and being unprotected. If you refile a Chapter 13, you might not get the automatic stay and you might have to file a motion to obtain the stay or be denied if the case was dismissed for cause.
49. Can I reduce my monthly payments in Chapter 13?
Yes, Chapter 13 can reduce your monthly payments. It can also reduce your interest rates to 8%, or even 0% on priority debts such as taxes, secured, and unsecured debts.
50. Do I have to pay back 100% of what I owe in Chapter 13?
No. You can repay as little as 0% to unsecured creditors in Chapter 13. Chapter 13 must pay at least what Chapter 7 would have paid. Certain plans may pay much less than 10% if that is all you can afford. You must repay your disposable income.
51. Can I pay some creditors and not others in Chapter 13?
No. You cannot discriminate and pay one unsecured creditor differently than other unsecured creditors in that class. However, different secured, unsecured, and priority debts are often paid differently, but the bankruptcy process determines those payments.
52. Should I try a debt settlement service instead of filing bankruptcy? How do debt settlement services work?
“Debt Settlement Services” are agencies that pocket 10%-50% of the monthly money that you pay to them as fees for their “counseling”. Most of these services will combine your bills and send a partial payment to each bill that you owe. Your credit will be listed by the credit card companies as delinquent for sending in partial payment, and the reduced amounts sent in may not even cover the interest that a debt charges.
⎆ They are NOT non-profit charities.
These “Counseling Services” often pretend to be non-profit charities. In fact, many file bankruptcy themselves, taking your money with them. They are also known to move and set up under a new corporate name. Try a Google search for “Ameridebt and the FTC.”
If you pay a debt counseling service $100 a month, what happens is that they take $40 for themselves and then send your creditors $60. As a result, your bills fall even farther behind. The ugly truth is that very few of these “repayment plans” work, while over 90% fail. Unfortunately, when they fail, it leaves you worse off than you were before.
⎆ How they work the scams.
Another scam is that some companies will charge thousands of dollars by promising to find you a consolidation loan as a loan broker or mortgage broker. These loans end up being at a high-interest rate or they pocket your money and never give you the loan.
Others strip the equity from your home in a home mortgage loan. Whatever method used, “Debt Counseling Services” are often scams meant to take your money when you are already in trouble.
⎆ Also, avoid credit repair scams.
Also, be wary of using services that claim to “repair” your credit file. You can easily find all the information you need to repair your credit for free at the library or from reputable online information sources. Remember, nothing repairs your credit better than paying your bills on time.
53. How long should I keep a copy of my bankruptcy?
Keep a copy of your Bankruptcy, with your tax papers, for at least 7 years. For one thing, you need them for a future mortgage application. However, they are part of an electronic filing system which means they are available for download at any Bankruptcy attorney’s office—if you filed after October 2002. For tax receipts, the requirement is to keep them for 3 years. After 3 years they have the burden of proof. But, regardless, we recommend that you keep all your tax and Bankruptcy records for 7 years.
54. When will I be able to get credit again?
You should be able to get other credit within 6 months to a year. However, your ability to get credit is still based on your income and history of repayment, along with the security you offer. However, you should be able to purchase a car or house if you reaffirm one or two debts and pay for them on time after your discharge. Additionally, you always must be able to afford what you are buying on credit or meet credit standards.
You will have to reestablish your credit by paying on time after your filing. In Kentucky, we are happy to talk to you and recommend home mortgage bankers and other services that will assist you in cleaning up your credit file so that you can qualify for a home. We can also recommend those that work specifically with bankrupt debtors.
There are also companies that lend to you while you are in Bankruptcy and just after Bankruptcy. 722 Redemption Funding will sell you a car at wholesale price (at about 21% interest), and they will also finance the redemption of some cars at the wholesale book value.
55. Will my employer and landlord find out about my bankruptcy?
Bankruptcy petitions are public records. However, under normal circumstances, no one knows you filed a bankruptcy petition unless you tell them. Chapter 13 debtors are often required to make payments through wage deduction, which means the employer learns about the bankruptcy.
56. Will this affect my getting an apartment?
Many of the larger apartment complexes are owned by banks, and banks tend to grant leases according to credit bureau reports. This may affect you. Small landlords will call former landlords and may not check credit reports.
57. Can employers discriminate or fire me?
Generally, no. There is an anti-discrimination section of the Bankruptcy Code that prevents employers and the state of Kentucky from denying your licenses or discriminating against present employees, but they can discriminate in hiring. Therefore, do yourself a favor and keep it to yourself. They generally won’t know unless you tell them.
Please note that Series 7 securities license holders lose their licenses if they file bankruptcy.
58. Are there bankruptcy crimes?
Yes. Criminal statutes related to Bankruptcy can be found at 18 U.S.C. sections 151 to 157. Examples of Bankruptcy crimes are knowingly and fraudulently concealing assets, lying under oath or on Bankruptcy schedules, and knowingly and fraudulently filing a false proof of claim. Bankruptcy fraud can also be used to support a RICO claim. Bankruptcy crimes are often the result of claiming you don’t own property that you do own or that has been transferred to hide it from the Court.
59. Do I have to disclose all of my assets?
Yes. If you knowingly and fraudulently conceal an asset from the Court, that’s a felony and the fine is up to $5,000, and imprisonment for up to five years, or both. However, the conviction is very rare and normally comes up in only the worst cases. Normally, the Court will simply deny a discharge, take an asset, or dismiss or convert your Bankruptcy proceeding.
60. Can I run up charges on my credit cards just before filing?
The official answer is “No”. Unfortunately, many people make the mistake of using their charge cards just before filing. However, spending sprees and charges of over $1,000 on any one card within 90 days before filing are presumed to be fraudulent and non-dischargeable. Also non-dischargeable are luxury items of $500 charged within 90 days and cash advances of $750 within 70 days.
However, charges to an account that takes place more than 90 days before filing are presumed proper. But, be aware that the rule about not charging within 90 days of filing isn’t written in stone. In fact, there are 12 factors Judges use to determine if a charge is fraudulent. The only penalty is that you will have to repay what you charged, not the entire debt. There isn’t really a “penalty” to these spending sprees. American Express monitors them the most, Lowe’s department stores the least.
61. Can I give property away just before filing?
Gifts of property over $600 just before filing are improper. Selling a property for less than its value is also a fraudulent transfer, and the Court can go after that property and the person you gave items to. Gifts under $600 are not improper. For example, give one gift of $900 to your child, and that is improper. But, give two separate gifts of a $450 computer to one child and a $450 car to another child — even minutes apart — and that is proper.
62. Can student loans or taxes be bankrupted?
(YES, in some cases) If someone tells you it can’t be done, it often means that they don’t know how to do it—or that they don’t want to do it. Student loans over 7 years old were dischargeable until October 1998, but are no longer bankruptable in Chapter 7 unless you get a discharge proving repayment is an undue hardship. This normally requires disability or retirement, but it is possible and requires an adversary proceeding.
63. Can I bankrupt a utility bill?
Yes, but they may make you pay a deposit equal to one month’s service to keep service with them. Cable TV is the exception because it is a luxury, not a utility. Cable TV can discontinue service if you bankrupt their bill. You won’t have to pay it, but they don’t have to turn it back on until you do.
If you include utilities in your bankruptcy, you need to immediately advise your utility, phone, water, gas, and electric company that you have filed and tell them your case number and the date you filed. If you simply file a Chapter 7, don’t pay, and don’t contact them, you may end up having your service turned off. It may be a month before the utility finds out that you have filed, so if you list a utility, advise them immediately.
64. Can bankruptcy stop a lawsuit?
Yes, but it will not stop criminal cases or criminal restitution. Criminal restitution cannot be bankrupted.
65. Can I get my driver’s license back?
If you have lost your license due to involvement in an accident where you had little or no insurance, filing Bankruptcy restores your license. We have the forms! Fax forms to 502-564-3250 in Frankfort.
66. Can bankruptcy help with tax matters or high rates and penalties?
Yes, Bankruptcy can get rid of income taxes, reduce interests and penalties in Chapter 13. Income taxes must be:
- Over 3 years old
- The return must have been filed 2 years prior
- There must not have been an assessment within 240 days prior to discharge the tax
- An offer in compromise or a due process hearing can increase waiting periods
The key is often to wait long enough for income taxes to be bankruptable. You can include taxes and student loans in a Chapter 13 repayment plan. The IRS lien is a statutory lien and cannot be avoided or stripped. However, it only lasts for 10 years after the tax is assessed. The tax is assessed when you file a proper return, so you must file your taxes on time so that it will dissolve 10 years later.67. What are predatory lenders?
⎆ Predatory lenders don’t care if you repay.
Interestingly, some lenders don’t care if you repay. Rather, they lend on the equity in your home, not on your ability to repay. Moreover, they never intend or expect you to repay. Instead, they intend to steal your home.
Others profit on overcharges and then selling very profitable loans to another lender. Then, if you fail to make payments, they repossess or foreclose to collect. Plus, they charge prepayment penalties, high-interest rates, and upfront loan costs. In addition, they often use unfair lending tactics to increase their income such as flipping and packing. However, they don’t keep the loan. Instead, they sell it to another company.
⎆ They target the poor, elderly, minorities, and under-educated with false advertising.
Unfortunately, they target the poor, elderly, minorities, and under-educated with false advertising. Then, they proceed with unreasonable overcharges in an attempt to make the loan impossible to pay off. Home improvement companies also sometimes use these mortgage companies to process loans for home improvements that are poor quality (if they are even made), and the result is that you sign your home away for second-class home improvements.
In addition, predatory lenders often overcharge for filing fees, reporting costs, and closing fees. After that, they fail to report the charges. If you are lucky, you will be able to sue them for truth-in-lending violations and, perhaps, have a free home. But, keep in mind that the more they steal or overcharge you, the more proud they are of doing it to you.
68. I have a small retirement account. Is it exempt? My regular stock brokerage cash account on the day of filing will only have a minimal amount (if any) of cash and some shares of companies that are bankrupt. As of the moment, the stock is worthless.
Normally retirement accounts can’t be taken by creditors or the bankruptcy court. The question is whether or not this is a retirement account. Just calling it a retirement account does not make it one. Real retirement accounts can’t be assigned or attached. If it can be easily spent by you, assigned, or attached, it isn’t a retirement account for purposes of the exemption. Of course, putting large amounts of money into an account just before filing (within 6 months) is wrong.
If the stock is worthless, you can list it and if the Trustee abandons it then it will belong to you. However, at the moment of filing your Chapter 7 Bankruptcy, all your property technically belongs to the Trustee.
69. Will I have a life after bankruptcy?
Absolutely. Most persons can purchase a car within a year after discharge and obtain a home mortgage within 2 years at reasonable rates. Some landlords may require a co-signer for a lease. Most clients report that bankruptcies drastically improve their circumstances.
70. What is the discharge?
A discharge is an immediate temporary order that goes into effect when you file Bankruptcy. This order stops foreclosures, garnishments, and collections. Also, when the Debtor completes the Bankruptcy a permanent court order called a discharge is issued. After you file bankruptcy you must complete a debtor education course to obtain the discharge.
71. What if I forget a debt or an asset?
If you forget to add a debt you may add it on later, however, it is at a cost. Also, if you file an amendment to add the debt after the case closes you have to pay another (299) filing fee. In fact, if the creditor is not listed, they may garnish and attach property later. So, if you forget an asset like a car you might lose it.
Additionally, a judge may or may not allow you to add on an asset and protect it by filing an amendment. “Forgetting” an asset and failing to list it or transfer cars, boats, money, and other assets to relatives just before filing is fraudulent and might cause you to lose the property.
72. What is the “means test?”
The means test for determining whether you file as Chapter 7 or 13. If your income is less than the average income for your family size, it is presumed that you will file Chapter 7 in good faith. Additionally, after deducting for reasonable expenses, if you are unable to repay a reasonable part of your debt, you might still be able to file. You can also file Chapter 13 even if you are poor. In fact, this is something you might do to strip a second mortgage or to stop IRS and student loan collections.
73. How is my retirement affected?
Only retirement accounts that qualify get protection from creditors and the Bankruptcy court. But, simply sticking money in a bank, and calling it your retirement account won’t save it from attachment. Generally, if you can reach it, creditors and the bankruptcy court can take it. Also, if you contributed to your retirement account for the last 8 months to a year then generally you continue to contribute at that level of contribution in Chapter 13. Also, if you borrowed from a 401k, those deductions continue as allowable expenses in your budget in the means test and in your schedules.
74. What if creditors continue to call?
If a creditor continues to call after the case has been filed you may file a contempt action against them for damages. The creditor is liable for damages plus attorney fees but you must keep records. It’s to your advantage to record the calls and keep any corresponding documentation and records.
Other Related Information
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.