Bankruptcy 101- THE FACTS
Q: What is Bankruptcy?
A: Bankruptcy is a process whereby a debtor can eliminate a significant portion of their total debt while retaining most if not all of their property. It was designed as a debt relief option for people who are having severe financial difficulties. It’s an option for people needing a fresh start financially.
Q: Who can apply?
A: An individual, spouses together, or a corporation or other entity. There are many different types of bankruptcy.
Q: How does one qualify for bankruptcy?
A: We have to look at the individual or entity’s overall circumstances. To evaluate the options, we have to first look at the filer’s income, assets, and type of debt. Do they have credit card debt? Is there a house or other real property in foreclosure? Do they owe back taxes? What’s their income to expense ratio? Do they wish to continue or dissolve the corporation? The approach I’ll take when helping a client is really determined by the answers to these questions.
Q: How can you, specifically, help a potential bankruptcy client?
A: I will address all of their questions and concerns about what will happen and how the process works. I will assess their situation regarding the factors I mentioned previously and I will explain what the options are and if there are other options available.
Q: What is the process of filing, if one is qualified?
A: The law requires an individual or entity to provide documents portraying their financial situation. The first step for me, once a client says they wish to file, is advising of all the specific pieces of information I will need. Examples include proof of income, recent tax returns, statements describing who they owe, and a list of all assets. Next, the filing party will have to partake in a credit counseling session specifically designed for bankruptcy filers. This can be completed online, in person or by phone. Then, we’d need to prepare, review and execute a petition. This is followed by a meeting with a trustee and/or a judge depending on the type of filing. There’s even more to the whole process which I would explain in-depth with a potential client.
Q: How long does a typical bankruptcy case take?
A: The life of a typical Chapter 7 case is normally 4-6 months. A Chapter 13 bankruptcy case can take anywhere from 3-5 years to complete.
Q: What happens after bankruptcy is granted?
A: This is what’s known as a discharge. A bankruptcy discharge releases the filer from personal liability for certain specified types of debt. The filer is no longer legally required to pay on the debts that are discharged.
Q: How long will a bankruptcy affect your credit?
A: Depending on the type of bankruptcy one files, it generally appears on an individual’s credit report for 7 to 10 years.
Q: How can I re-establish my credit rating after bankruptcy?
A: The best way is to obtain new credit and make the payments on time. Sometimes an existing creditor may continue to grant you credit based upon a reaffirmation agreement made during the bankruptcy. You may also be able to obtain a secured credit card, where the credit limit is based on the amount of security given, or obtain credit using a co-signer.
Q: Do you provide preventative counsel if someone may be close to filing?
A: Absolutely, that ties back in with discussing their options. For example, maybe someone could focus on paying off debt with higher interest rates first. I can advise someone to potentially get rid of certain assets to pay others off. You don’t have to go to a financial adviser if you need counseling, I can help to see what can be done.
Q: Are student loans dischargeable in bankruptcy?
A: Generally, student loans are not dischargeable in a bankruptcy proceeding. 11 U.S.C. Section 523(a) (8) cites two exceptions to this general rule:
The student loan may be discharged if it is neither insured or guaranteed by a governmental unit nor made under any program funded in whole or in part by a governmental unit or nonprofit institution.
The student loan may be discharged if paying the loan will “impose an undue hardship on the debtor and debtor’s dependents.”
More Questions? Please consider calling attorney Paul Pochepan at 716-636-7600 to schedule a free initial consultation.
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