Frequently Asked Questions About
Bankruptcy in Maryland
What is bankruptcy?
Can bankruptcy help tax matters?
Can co-signers be protected?
Can bankruptcy stop
creditor harassment?
Can home foreclorure be prevented?
Can monthly payments be reduced?
How will my credit be affected?
What about lawsuits
and judgments?
Can I protecy my property
from reposession?
What are the advantages
of bankruptcy?
How long do I have to
wait to rebuild my credit?
How would I know if chapter
7 bankruptcy is right for my situation?
What
is bankruptcy?
Information on Filing Bankruptcy: Bankruptcy is a legal procedure
designed both to protect an individual or business that can't meet
its financial obligations and to protect the creditors involved. To
begin the process, proper papers must be filed.
There are specific chapters of the federal bankruptcy law.
Proceedings under Chapter 7 (known as straight bankruptcy) involve
taking most of the borrower's property. The court appoints a trustee
to sell off the assets and distribute the cash among the creditors.
Proceedings under Chapter 13 (known as wage earner's bankruptcy)
involve the borrower proposing a plan for repaying a portion of the
debt in installments from the borrower's income. Chapter 11 of the
federal Bankruptcy Act is generally used by corporations and not by
consumer debtors. Its proceedings are expensive and complex. Consumer
debtors normally use Chapter 7 or Chapter 13.
Once the bankruptcy proceeding ends, the borrower is no longer
liable. This occurs when the bankruptcy court enters a discharge
order in a Chapter 7 case or the borrower has paid the debts due to
the credit grantors according to a plan in a Chapter 11 or a Chapter
13 case. In legal terms, the court has discharged the borrower from
the debts. The borrower then starts over again with a clean financial
slate, but the record of the bankruptcy will remain on the borrower's
credit record for up to ten years.
Can bankruptcy help tax matters?
Taxes are debts to a government agency much like debts you might have
to individuals and companies. They are different from other debts,
however, because the governmental agencies collecting these taxes
have greater power over you and your property than other creditors have.
Since the Bankruptcy Code provides for protection to anyone filing
bankruptcy, these taxing authorities may have less ability to affect
you and your property while you are under bankruptcy protection. The
filing of a bankruptcy case may stop collection activity of
governmental agencies for the collection of taxes owed. A Chapter 13
bankruptcy can provide for level monthly payment of your tax
obligation without additional interest or penalties. Chapter 7 and
Chapter 13 can reduce or eliminate certain tax obligations that have
been due and payable for more than three years.
Bankruptcy may be the best, or only, solution for extreme financial
hardship. However, it should be utilized exclusively as a last resort
since it has long lasting consequences. The record of a bankruptcy
remains in your credit files in credit bureaus for as long as ten
years. It is recommended to consult a financial expert before
resorting to bankruptcy as a means of solving your economic troubles.
Can co-signers be protected?
If you file Chapter 7 bankruptcy, the creditor can proceed against
your co-signers, according to the terms of the debt agreement.
However, if you file a Chapter 13 debt adjustment, a co-signer is
protected if the following conditions are met. The debt must be a
consumer debt. Also, the debt may not be incurred in the ordinary
course of business, and the co-signer cannot benefit from the
proceeds of the debt. As long as the debtor is making the required
payments under the Chapter 13 plan, the creditor cannot act to
collect from the co-signer. The purpose of this provision of Chapter
13 is to allow a debtor to repay the debt without the creditor
approaching the co-signer for repayment.
In conclusion, if you file a Chapter 7 bankruptcy, your creditors
have the right to immediately demand payment from your cosigners. If,
on the other hand, you file a bankruptcy petition and a proposed
payment plan under Chapter 13, your creditors cannot collect from
your co-signers unless it becomes clear that the Chapter 13 plan will
not pay the entire amount owed.
It is important to choose a qualified lawyer or financial adviser to
set up your repayment plan. If you are unable to make your payments
under Chapter 13, you may still file for Chapter 7 bankruptcy.
However, your creditors would then have the right to immediately
demand payment from your cosigners.
Can
bankruptcy stop creditor harassment?
There are several strategies for dealing with creditor harassment.
First, be as honest as possible. If you explain why your account is
in default, you may be able to persuade the creditor to allow you
more time for payment or to make other arrangements for payment. But
this is not always the case. Some creditors and collection agents are
reasonable; others may rely on threats and intimidation.
A second method of stopping creditor harassment is to file for
bankruptcy. Though bankruptcy can have long-lasting consequences, it
may be the best solution in certain cases. In addition, filing for
either Chapter 7 or Chapter 13 bankruptcy will immediately stop
creditor harassment.
Can
home foreclorure be prevented?
If a person gets behind on his or her house payments, the creditor
may call the loan in default, accelerate the debt, and begin
foreclosure proceedings. When a debt is accelerated, the full balance
of the note, not just the monthly payments, is due, in full,
immediately. This is usually preceded by the creditor's refusal to
accept monthly payments.
In the event a creditor begins foreclosure, you will receive a notice
of the foreclosure proceeding. Unless the creditor is willing to
accept payments to reinstate the loan, you will have to either pay
the full balance remaining on the loan, or file bankruptcy for
protection to stop the foreclosure. One additional option is to
contact HUD for mortgage assistance. Sometimes creditors will agree
to stop foreclosure while HUD is reviewing your file.
The beginning of a bankruptcy case, if before the foreclosure sale
date, will stop the foreclosure sale from taking place. Under a
Chapter 13 plan, you can make regular monthly payments and be given a
reasonable period of time to bring your loan payments up to date to
save your property.
Bankruptcy may be the best solution for extreme financial hardship.
However, it should be used as a last resort, since it can have long-
lasting consequences in relation to your credit.
For more information on foreclosures, consult with an attorney
experienced in bankruptcy law.
Can
monthly payments be reduced?
If you have unmanageable debt and file a Chapter 7 straight
bankruptcy, you will not be required to repay your debts. This
affords you a clean slate with which to approach future obligations.
Those electing to repay their debts under Chapter 13 must first
determine their expected future monthly income or take-home pay. All
types of income can be considered, such as wages, commissions, child
support, spousal support, social security, workers compensation,
unemployment, disability benefits, retirement, and dividends, so long
as they constitute regular income.
After determining income, an amount should be set aside to provide
for normal living expenses. The amount of income remaining after
providing for living expenses is the maximum amount available for
debt payments. If you cannot repay your debts in full over three to
five years, you may be eligible for a partial repayment plan, or a
"best efforts" plan. According to the "best
efforts" plan, the idea is to repay as much as you can afford.
At the end of the plan, any unpaid plan debts will be discharged. In
any event, Chapter 13 almost always reduces your payments to an
amount you can afford.
How
will my credit be affected?
How your credit will be affected by filing either a Chapter 7
bankruptcy or a Chapter 13 debt reorganization petition depends on a
number of individual factors. One is your credit status today. If
your credit is perfect, bankruptcy will have a negative affect on
your credit. If your credit is substantially impaired, now or in the
near future, filing bankruptcy may be one of the best things you can
do to improve your credit. There are two main reasons for this:
After filing bankruptcy you are debt free, making your ability to
repay any new credit better after bankruptcy than before, simply
because you have no other debts to pay after declaring bankruptcy.
You can file Chapter 7 bankruptcy only once every six years
What
about lawsuits
and judgments?
The filing of either a Chapter 7 straight bankruptcy or Chapter 13
debt adjustment immediately stops any lawsuits from being filed or
judgments being taken against you. If a law suit is pending at the
time of such filing, it can go no further. If a judgment has been
taken, its enforcement can go no further.
If a creditor has a judgment and is garnishing your wages, the
garnishment can be stopped. Filing for Chapter 7 straight bankruptcy
may relieve you of the obligation to pay the judgment. In a Chapter
13 debt adjustment, you may be able to satisfy the judgment over a
period not to exceed five years. If the judgment has placed a lien on
your home, that lien can be removed if it interferes with your
homestead. If lawsuits or judgments are a threat or reality, the
protection afforded under the bankruptcy laws may be an appropriate
solution for you.
Can
I protecy my property from reposession?
Repossession is the power of the creditor to take back goods because
of the buyer's failure to meet the loan payments.
There are two types of loans: secured and unsecured. A secured loan
is one that requires you to pledge something as collateral. For
example, if you purchase a car, the creditor will usually require you
to put up the car as collateral. On the other hand, an unsecured
loan, does not require collateral. Using a credit card is usually an
unsecured loan. If you default on an unsecured loan, the creditor's
only recourse, after the letters and the collection agency efforts
fail, is to sue. But if you default on a secured loan, the creditor
can repossess the collateral and sell it.
If the money from the sale isn't enough to pay off the loan, the
creditor can sue you for the balance of the loan. If you fall behind
in your loan, you should contact your creditors as quickly as
possible and attempt to work out a voluntary repayment plan.
Bankruptcy may be able to cancel the debt, or it may give the
opportunity to stop the repossession. However, bankruptcy should be
used in only the most serious circumstances since it can affect your
credit for up to ten years. If your property has already been
repossessed, some states give you the opportunity to have your
property returned by paying all outstanding loan charges, fees, and costs.
What
are the advantages of bankruptcy?
Once discharged through bankruptcy your debts are erased; in other
words you are no longer responsible for paying them. 12. What about
my credit?
The fact is that when lenders or other creditors review your credit
report they rank bankruptcy as the worst.
How
long do I have to wait to rebuild my credit?
You can rebuild your credit immediately with a secured loan or credit
card. In fact you can even obtain these items while going through the
bankruptcy process. 14. How long does it take before my debt are discharged?
Chapter 7 takes between 3 to 8 months;
Chapter 11 can take from just under a year to many years;
Chapter 13 can take several months while trying to get your repayment
plan approved. However, the actual discharge is not final until
you've met the payment plan requirements which takes from 36 to 60
months to complete.
How long until my credit gets back to the point where I might hope to
get a regular credit card or mortgage?
Rebuilding credit depends on how aggressively you try to get back on
track, but don't figure less than 1-3 years. Remember, you can always
get a secured credit card or a mortgage with a low loan to value
(LTV) and high interest rate, sometimes even still in the middle of a bankruptcy.
How
would I know if chapter 7 bankruptcy is right for my situation?
If you have very few assets with no property and your assets can be
exempted then Chapter 7 may be right for you as long as you have no
other obligations such as court ordered alimony, child support
payments, criminal restitution, non-dischargeable taxes, or student
loans. (list of non-dischargeable items) Many national creditors
prefer that you file Chapter 7 if they cannot recover at least 50
cents on the dollar.
Which bankruptcy chapter is the least expensive? Chapter 7 is the
least expensive because you do not have to pay off the debts. The
next least expensive is Chapter 13 where you repay about 10 cents on
the dollBankruptcy Myths Busted
The average American knows very little about bankruptcy. Most people probably are aware of bankruptcy’s ability to dissolve debt and give the debtor a fresh start. Some of the information you might have heard is correct, but some is not. The purpose of this article is to dispel some of the most common bankruptcy myths.
1. Even if I file for bankruptcy creditors will still harass me and my family.
This is absolutely false. Bankruptcy law provides for an automatic stay. Simply, as soon as you file for bankruptcy a hold is put on all your outstanding debts and any creditor attempts to collect those debts. The law prohibits a debtor to attempt to collect, possess, or even contact the debtor in regard to the debt. If a creditor does not follow the rules, the debtor may have an action in the form of punitive damages. Basically, punitive damages are meant to punish a creditor for not following the procedures set out in the bankruptcy code. Whether a debtor has a cause of action against a creditor should be left to an attorney to answer. However what you need to know is this; once you file for bankruptcy, creditors must leave you alone or suffer the consequences.
2. If I file for bankruptcy it may cause more family troubles than I already have, maybe even divorce.
This is also false. There are two ways a debtor can file for bankruptcy voluntary and involuntary. Voluntary filing is done by the debtor. The debtor talks to an attorney or files a petition pro se and gets the bankruptcy process started. In an involuntary bankruptcy, the creditor forces the debtor into bankruptcy often times unwanted by the debtor. Voluntary filing is the result of a family discussing their options with each other and possibly an attorney and making an informed decision on the merits. Divorce is often associated with a bankruptcy with the latter filing. Voluntarily filing for bankruptcy gives the debtor a chance to set his terms and allows the debtor a free choice for the bankruptcy.
3. If I file for bankruptcy the trustee will seize all of my assets and sell them to settle my debts with creditors.
Again this is false. While it is one of the duties of a trustee to sell assets in the estate, the trustee cannot necessarily reach all of your assets. There are many factors that must be examined before this happens. The type of bankruptcy as a lot to do with how much the trustee can seize. For example, a chapter 13 is a reorganization bankruptcy. Simply, the debtor keeps the majority if not all of his assets, and forms a repayment plan to satisfy interested creditors. Even in a chapter 7 filing the debtor gets to keep many assets. These are called non-exempt assets. The debtor’s house, car, clothing, furniture, life insurance, etc. are all non-exempt assets. These are just a few of the main assets. An attorney will be able to arm you with the information you need to keep even more personal property a debtor thought possible.
4. If I file for bankruptcy now, I will never be able to file again.
Surprise, this too is false. Filing for bankruptcy does not make you ineligible to file again. Without going into too much detail, just know the bankruptcy code allows a debtor to file for bankruptcy more than once. There are a few things different most importantly possibility of discharge, however you can file for bankruptcy again if you already have filed.
5. If I file for bankruptcy I will never get credit again.
This is simply false. If this were true then nobody would file for bankruptcy. Americans depend on credit and this is no different than a debtor who has filed for bankruptcy. Several banks now offer credit on a secured basis to potentially risky customers. The debtor would put up a small amount of money so as to secure payment in the future. Once the debtor proves his ability to pay, credit limits get higher. As little as two years after a chapter 7, a debtor is eligible for mortgage loans on terms equal to someone who has not gone through bankruptcy. Creditors look more to a debtors stability, as opposed to the fact you filed for bankruptcy.
ar, followed by Chapter 11.
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"There
is No Substitute For Experience."
JACK I. HYATT
Bankruptcy
Attorney
Attorney Profile:
Former
Assistant State's Attorney
Admitted To
Practice Before:
The U.S.
Supreme Court
All Maryland Courts
Federal
District Court
Member:
Maryland
State Bar Association
Baltimore
City Bar Association
Baltimore
County Bar Association
University of Baltimore
A.A. B.S. J.D.
Honorable
Discharge U.S. Army
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