July 3, 2014
We believe that questions about bankruptcy are unique to your situation (and frequently asked questions are often lame). While there are general concerns and questions that apply to most people, we encourage clients to call our office for a free consultation for specific answers to their bankruptcy questions.
Remember, we do not pressure potential clients to make an appointment. If you call, it really, truly is an opportunity to simply ask your questions.
That said, here are some common and general questions that we’re asked all the time.
1. Does Bankruptcy ruin my credit, or will it hurt me in the future?
First, remember that credit includes more criteria then merely paying your bills on time. We frequently get calls from people who are having a hard time keeping up, but have not yet missed a bill payment. They mistakenly believe that their credit rating is still “good” simply because they have not been late or missed a payment.
Another very important factor in your credit rating is what defined as your debt to income ratio. This is a function of how much money you owe compared to how much money you have coming in. You want low debt and large income.
Example 1: Donald Duck’s annual income is 20 million dollars a year. Mr. Duck has no mortgage, and owes $20,000 on his car and $1,500.00 on his credit card. Mr. Ducks debt to income ratio is great.
Example 2: John Doe makes $42,000 annually, and owes $120,000 on his house, $6,000 on his car and $12,000 on his credit card. His debt to income ratio is not very good. It does not matter how quickly he pays his bills.
Bankruptcy will improve your debt to income ratio dramatically, and almost instantly. If any payments have already been missed, then the credit issue doesn’t matter, anyway.
If you have been hit with a home foreclosure, a lawsuits and a judgment or repossession, the best thing you can do is get rid of your debt. At this point, your credit is poor. The only way to go is up. Calling an experienced Detroit bankruptcy attorney should be the next step.
2. What happens to my home?
If you are current on your house payments and can continue to pay for it, you can keep your home during bankruptcy. In certain cases, bankruptcy can allow you to catch up on your home payments if you are behind but have the means to catch up.
Conversely, you can claim your home (meaning put you home into bankruptcy, give it back, and not be liable for the rest of the money you owe on it) during bankruptcy regardless if your payments are current, the home is in foreclosure, or you have a debt or judgment. No matter your situation, bankruptcy allows you to walk away from your mortgage and owe nothing.
Based on the current economy, we are often asked what to do with a home during bankruptcy. Some clients find themselves current on payments, or only a little behind, but wondering if it is a good idea to remain tied to a mortgage.
There is no easy answer. This is a unique question based on the client’s situation. Once we know the details of your case, we can guide you to make an informed decision.
Example: Ben Green bought his home for a $120,000 in 2006. He still owes $120,000 on his home, even though the house is now worth only $90,000. When Mr. Green files for bankruptcy, claiming (meaning getting rid of) the home to get out of the upside down situation may be the smarter financial move.
3. Can I keep my car?
If you can pay for your car, you can keep it. Likewise, if you own it, and assuming it is not worth a ton of money, it can be “protected” by an exemption during the bankruptcy process.
4. Can I keep my retirement account?
In almost all cases, retirement accounts are protected by an exemption under bankruptcy law. Of course, part of the service a Michigan bankruptcy attorney provides is a review of that information to make sure it is protected, or, if in the rare case something is not, what can be done about it.
5. Will I lose any of my possessions?
In almost every case, the answer is no—you will not lose any of your possessions. However, if you own an original Michelangelo painting that is worth a few hundred thousand dollars, there isn’t an exemption to protect it. You will likely have to claim the painting.
The exemptions in bankruptcy generally protect the possessions of a regular person. Goods that rich people own, like a big fat collection of antique Rolex watches, are not protected, but even a single Rolex may very well be protected.
Again, as your bankruptcy law firm, we will go over everything in fine detail to make sure that we know what you have, and you know what you have, and that it is all carefully listed and protected.
6. Will my landlord, employer, friends, family and neighbors find out that I filed for Bankruptcy?
Not unless you tell them, or you authorize them to run your credit report.
7. Will I ever be able to get credit, a credit card, or a mortgage again?
Yes. Usually, you can and should have a new credit card within a few months of the time your case is over (typically four months from start to finish). Your credit should be high enough to do most things within a year from the time of your bankruptcy discharge.
Three years after your discharge, the bankruptcy will likely not impact your ability to qualify for a mortgage. This is the general rule for mortgages.
8. What is the difference between Chapter 7 and Chapter 13 bankruptcy?
The short answer is that Chapter 13 bankruptcy involves up to a five year plan to repay a certain percentage of your debt. Chapter 7 bankruptcy wipes all of your debt away. If a person (or married couple) has too much debt, but is able to pay at least 25 percent of that debt back, the law requires them to do just that. That repayment plan is called a Chapter 13 bankruptcy. This process can take five years to complete.
However, after regular living expenses, a person (or married couple) who does not have enough money left to pay at least 25 percent of their debt in less than five years is eligible to have their debt wiped away. This is called Chapter 7 bankruptcy. This process takes about four months to complete. Generally if you have $120 dollars or less left over after paying all of your monthly expenses, you qualify for Chapter 7 bankruptcy.
For most people in Michigan, having any amount of money left over to pay debt is a very unlikely. Most clients do not have enough income to formulate a repayment plan. The goal is to get out of debt as quickly as possible, so a Chapter 7 bankruptcy is always the preferred course of action.
9. Why would anyone want to file for Chapter 13 bankruptcy?
Which chapter a person files is not a matter of choice, but of necessity based upon their income and expenses.
The bottom line is, you hope and try to qualify for a Chapter 7 bankruptcy, but if your income is too high, or you have too much money left over at the end of the month, then the only bankruptcy help available is a repayment plan.
10. What about married people filing alone?
Married couples can always file individually. The real question is whether or not your bankruptcy declaration will impact the non-filing spouse. If there is no joint debt, then the bankruptcy will not hurt the spouse who does not file.
If, however, there is joint debt, which means debt that both parties signed for, then the one who does not file will be affected. This means that a spouse who was only an authorized user on a credit card, and did not apply or otherwise sign to be responsible for it, will not be hurt when the credit card holder files bankruptcy.
11. How does the Bankruptcy process work?
We refer clients to our Bankruptcy Quick Start Guide for some light reading on the bankruptcy process in Michigan. In general, the process for Chapter 7 bankruptcy goes like this.
Step 1: You provide the information necessary for us to create a “bankruptcy petition” which is filed with the bankruptcy court. Once filed, you are legally protected from any further creditor action against you, including phone calls.
Step 2: About one month later you go to bankruptcy court with your Detroit bankruptcy lawyer for a very quick, simple (not scary) hearing called a Meeting of Creditors. It usually lasts less than five minutes, and creditors rarely ever show up.
Step 3: In the following two to three months after a Bankruptcy Petition was filed, you receive the bankruptcy court’s final order, discharging your debts. This is called a “discharge.” It means that all the debt you listed and wanted to get rid of has been wiped out.
12. What about all the questions that I have which aren’t listed here?
See, FAQ’s are lame. Honestly, there is no way to know what questions a real person will have, or what is important to clients. Every client has a unique situation.
The team at the Law Office of Jeffrey J. Randa will always answer your questions over the phone, during regular business hours, with no pressure to “sign up” or make an appointment. Help is just a phone call away.