Bankruptcy FAQ

1. What is bankruptcy?
2.What are the different kinds of bankruptcy?
3.Why do people file a Chapter 7 bankruptcy?
4. Why do people file a Chapter 13 bankruptcy?
5. How often can I file bankruptcy?
6. What assets will I be able to keep?
7. Are there debts that bankruptcy will not erase?
8. Will filing bankruptcy stop harassing phone calls?
9. I think the bankruptcy laws have changed; can I still file a Chapter 7?
10. How will bankruptcy affect my credit?
11. How can co-signers be protected in bankruptcy?
12. Will my spouse be affected by my bankruptcy?
13. Will my utility services be affected?
14. What is the bankruptcy process like and how long does it take?
15. Do I need to see a credit counselor before I file bankruptcy and what does it cost?
16. Can I continue to pay a discharged debt?
17. Can I repay my retirement loans if I file a bankruptcy?
18. Can I be discriminated against in terms of my employment if I go bankrupt?
19. Will I be able to get a car loan after I go bankrupt?
20. Will I be able to get a mortgage after I go bankrupt?
21. How long is a credit counseling certificate good for in bankruptcy?
22. What do I have to do to obtain my credit counseling certificate?
23. Are people ever denied their discharge?
24. Can my discharge be revoked?
25. How do taxes work in bankruptcy?
26. Can I be discriminated against in terms of my employment if I go bankrupt?
27. How does a Corporate or Limited Liability Company (LLC) chapter 7 bankruptcy work?
28. How do I value my assets in a bankruptcy?
29. Do I have to have all my taxes filed to go bankrupt?
30. Can I eliminate payday advance loans in bankruptcy?
31. Are there advantages in terms of my car loan, if I file a bankruptcy?
32. What can bankruptcy do and not do?
33. How do I determine my necessary living expenditures?
34. What is a reaffirmation agreement?
35. If I?m in a Chapter 13 can I convert to a Chapter 7?
36. How does child support and child support arrearages work in bankruptcy?
37. Will bankruptcy stop my mortgage foreclosure?
38. Will bankruptcy stop my wage garnishment?
39. Will bankruptcy stop the IRS?
40.Will bankruptcy impact my divorce?
41. If I'm going through a bankruptcy and a divorce should I use the same law firm?

1. What is bankruptcy?
Bankruptcy is a legal process by which a debtor approaches a Federal Bankruptcy Judge in an effort to obtain the forgiveness of all or a portion of that debtor's debts. A successful bankruptcy ends in what is called a discharge, which forgives or eliminates all or significant portions of a debtor's debt load.

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2. What are the different kinds of bankruptcy?
The most common type of bankruptcy is called a Chapter 7 bankruptcy. A Chapter 7 is a complete bankruptcy in the sense that it is for people that cannot pay any portion of their debt load either through asset liquidation or their income stream. In other ords, Chapter 7 is suitable for people who do not own much in terms of assets and are barely able to make ends meet in terms of their income and living expenses. Another type of consumer bankruptcy is called Chapter 13. Chapter 13 is a repayment plan. In a Chapter 13 a debtor pays all or some portion of the principal balance of their debt load and receives a forgiveness or discharge of the remaining indebtedness. There is also a type of bankruptcy called a Chapter 11 which is a repayment plan for Corporations, Limited Liability Companies, and individuals who owe particularly large sums of money. Finally, Chapter 12 is a reorganization plan for farmers.

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3. Why do people file a Chapter 7 bankruptcy?
People file a Chapter 7 bankruptcy when they feel they have no other legitimate choice. A person who files a Chapter 7 generally cannot obtain a loan, does not have assets that can be liquidated in order to pay their debts, does not have any lump sums on the horizon such as an inheritance or a reason for which they can sue some person or business for money, and have no wealthy relations to turn to. Furthermore, a typical Chapter 7 debtor cannot afford to pay their full principal balance even with reduced interest such as in an accredited credit counseling program. A Chapter 7 debtor is generally collectable as well in the sense that if they do not pay their creditors and do not go bankrupt then the debtor will experience the garnishment of their paycheck as well as the seizure of their bank accounts, if a creditor sues them and obtains a judgment. If the person simply has no other option other than filing a Chapter 7 or having their paycheck garnished they will often file a Chapter 7 bankruptcy in which they ask for a complete forgiveness, or discharge, of their debts.

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4. Why do people file a Chapter 13 bankruptcy?
There are a series of reasons why a person files a Chapter 13 bankruptcy. The first is if they make so much money that the bankruptcy court would not allow them to obtain a complete forgiveness of their debts. If a person can make a meaningful repayment to their creditors then they must file a Chapter 13 bankruptcy which is a repayment plan in which they pay some portion of their principal balance and receive a discharge of their remaining indebtedness. Another reason why a person will file a Chapter 13 bankruptcy is if they are behind on their house and they wish to present a foreclosure. In Chapter 13 a person can make up their missed mortgage payments over time and reconstruct their mortgage. It is important to understand that the bankruptcy must be filed prior to any foreclosure in order for the foreclosure to be prevented. Other people file a Chapter 13 bankruptcy in order to take advantage of certain benefits that they can receive in regard to vehicles. The first of these benefits is that if a vehicle payment is not up to date the debtor can prevent repossession and restructure those payments over time. Also, if a debtor is paying a very high interest rate on a vehicle a Chapter 13 bankruptcy can be used to reduce the interest rate. Furthermore, if a vehicle loan was made more than 2 years before the bankruptcy is filed a so called cram down can occur. A cram down is when a vehicle is worth less than the amount that is owed on the vehicle and the debtor classifies the value as a secured claim, meaning that the vehicle is paid in full with applicable interest up to its value, and the balance of the debt is classified as an unsecured claim which is paid mere pennies on the dollar. For example, if a debtor's vehicle is worth $10,000.00 and the debtor owes $18,000.00 and that loan is more than 2 years old then the debtor can pay the $10,000.00 with contract interest, or a reduced interest rate, and classify the other $8,000.00 exactly like a credit card or medical bill meaning that the debtor can modify the debt and pay pennies on the dollar on same. Another reason why a person files a Chapter 13 bankruptcy is if they have significant tax debt. Tax debt can be prioritized and paid in full while other creditors are not being paid in full. Furthermore, Chapter 13 bankruptcy stops interest and penalties on income tax debts. Another reason why a person may file a Chapter 13 bankruptcy is if they cannot file a Chapter 7 bankruptcy because they have filed a Chapter 7 bankruptcy before. When a person files a Chapter 7 bankruptcy they enter a prohibition period where they cannot file another Chapter 7 for 8 years. However, they can file a Chapter 13 bankruptcy after 4 years, so sometimes a person will file a Chapter 13 bankruptcy because they are not eligible for a Chapter 7.

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5. How often can I file bankruptcy?
If a person files a Chapter 7 bankruptcy they cannot file another Chapter 7 for 8 years from the date of the filing of the original Chapter 7. They also cannot file a Chapter 13 for 4 years from the date of the filing of their Chapter 7 and receive a discharge. Each of the above time guidelines is based upon the idea that the debtor has successfully completed their case and received a discharge. Also, if you have received a Chapter 13 discharge then you cannot file another Chapter 13 for 2 years and receive a discharge.

6. What assets will I be able to keep?
In a Chapter 7 bankruptcy there are limits in terms of how much property an individual can keep. The amount of property that an individual can retain is called that individuals exemption limit. There are different exemption limits for different properties and they change from time to time. Most debtors in Michigan choose to use the Federal Exemptions rather than the state exemptions as the Federal exemptions are much more generous for most people. In terms of real estate the present Federal exemption is $ $21,625 per deed holder. There is also a so called wild card exemption which allows a debtor to keep anything they wish. The wild card exemption ranges from $1,075.00 to $11,200.00 per individual and can be used to exempt anything. The vehicle equity exemption is $ 3,450. The general household goods exemption is $ 11,525. The jewelry exemption is $ 1,450. The tools exemption is $ 2,175. Almost all retirement plans are fully protectable in bankruptcy. A debtor is also able to repay your retirement loans in a bankruptcy. In Chapter 7 if a person owns more than they are allowed to keep then it is the Trustee's duty to gather the non-exempt assets and liquidate them on behalf of that debtor's unsecured creditors. In Chapter 13 the liquidation of assets is not generally an applicable concept. In Chapter 13 there is an asset test which is used to determine how much each individual debtor must pay. This is often referred to as the Best Interest Of Creditors Test. However, sometimes the results of the asset test are such that a person could not meet the asset test result without the liquidation of assets which is why sometimes there is a liquidation of assets in a Chapter 13 bankruptcy. Generally speaking, to the degree that a debtor has non-exempt assets in a Chapter 13 they must match that non-exempt portion to their unsecured creditors on a dollar for dollar basis over the life of their repayment program.

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7. Are there debts that bankruptcy will not erase?
Yes. Student loans are generally non-dischargeable in bankruptcy. Income tax debts from the last three years are also non-dischargeable. If a debt is accrued through means that are immoral or illegal then it is very likely that the Judge will not erase those debts. For example, if a debtor severally beats a victim and the victim sues the debtor and receives a civil judgment then that civil judgment will not be discharged in that debtor's Chapter 7 bankruptcy proceeding. It is also common for debtors to decide that they do not wish to discharge certain debts. For example, many people decide to keep their houses and cars in a bankruptcy. This is called a reaffirmation.

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8. Will filing bankruptcy stop harassing phone calls?
Yes. The first event which occurs when an individual files a bankruptcy is the issuance of what is called an Automatic Stay Order. The Automatic Stay Order is sent to each of the debtor's creditors and unequivocally states that the creditor must leave the debtor alone. In other words, if a creditor harasses, calls, sues, or otherwise bothers a debtor who is under the protection of the Bankruptcy Court then that creditor may be subjected to sanctions by way of a Motion for Contempt of Court inside the Federal Bankruptcy Court. Creditors almost always follow the Order and stop the harassment and it is very rare for a debtor to have to enforce the Order in Court. The penalties for violating the Automatic Stay Order can be severe.

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9. I think the bankruptcy laws have changed; can I still file a Chapter 7?
Yes you can. Although the bankruptcy reform initiative which occurred in October of 2005, was intended to reduce the number of Chapter 7 filings in America, there are still a great many Chapter 7 bankruptcies being filed.

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10. How will bankruptcy affect my credit?
A Chapter 7 is on your credit report for 10 years. A Chapter 13 is on your report for 7 years. Most people who file bankruptcy have terrible credit scores on the day that they file. This is because they have a high debt to income ratio and a record of recent delinquencies because they are not paying their bills. People who file bankruptcies generally cannot obtain any significant loan before they file their case. When a bankruptcy discharge is received it often improves a debtor's credit in the sense that a person can often obtain loans when before they could not. However, they often pay high interest rates for the loans. Bankruptcy does not affect the ability of an individual to go to the emergency room if that individual is sick. Hospitals must accept everyone in emergency rooms. Further, bankruptcy is not intended to stop a person from obtaining their educational goals. Filing a bankruptcy will not prohibit you from obtaining a student loan in the future or your children. Bankruptcy does affect interest rates for all types of loans.

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11. How can co-signers be protected in bankruptcy?
In a Chapter 7 bankruptcy if there is a co-debtor account then the individual going bankrupt can continue to make payments on the account despite the bankruptcy. If the co-signed account is a secured account such as a car or a mortgage then the debtor can sign what is called a reaffirmation agreement which is a formal reinstallation of the debt. If a debtor reaffirms or continues to make payments then generally the co-debtor will not be bothered by the creditor in relation to the debt. In a Chapter 13 bankruptcy a debtor can protect a co-debtor completely by creating a special class in which to pay the co-debt in full with interest. Ultimately, it is up to the bankruptcy Judge in charge of the Chapter 13 case whether or not a special co-debtor class will be allowed in any particular case.

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12. Will my spouse be affected by my bankruptcy?
Not directly. It is possible for a person who is married to file a bankruptcy without their spouse being included. If you file a bankruptcy it should not appear on your spouse's credit if you do not have joint obligations, and your spouse will not generally be called upon to testify. On the other hand, when a bankrupt debtor presents an income schedule to the court it is an income schedule with all of the family income on it including the income of a spouse who has not filed the bankruptcy. It is also true that two spouses could file separate bankruptcies. Because the debtor's family income and family budget must be shown in the bankruptcy a debtor's spouse sometimes feels affected in the sense that they must produce proof of income and because their income is taken into account when the Judge determines what the family can do about a particular debt problem.

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13. Will my utility services be affected?
Generally not. In Chapter 7 a debtor's up to date utility services are not included on the list of creditors notified of the case. Likewise, in Chapter 13 most debtors simply go on with their present utility arrangements. However, if a debtor is receiving past due utility bills and includes those bills in his bankruptcy then that debtor may receive a shut off notice and may have to pay a security deposit in order to continue with that utility company in the future.

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14. What is the bankruptcy process like and how long does it take?
The process begins with a free initial consult at Baumstark & Vincent, PLLC. At that free consult your rights, duties and obligations under the United States Bankruptcy Code will be discussed in detail as will any other possible options. If it is decided that a bankruptcy would be in your best interest then the particular type of bankruptcy and a fee quote for same will be discussed. A second meeting is generally held at which time the attorneys at Baumstark & Vincent, PLLC, discuss with the individual client what that client needs to bring into our office in order for us to file a bankruptcy on their behalf. Then there is generally 1-3 appointments where the clients bring the items to the office and an attorney from Baumstark & Vincent, PLLC, goes through those exhibits and facts with the client. Ultimately, the attorneys at Baumstark & Vincent, PLLC, take that information and prepare a set of bankruptcy pleadings, which is a large stack of documents which the client reviews and ultimately schedules an appointment to sign. An attorney at Baumstark & Vincent, PLLC, will be at your signing appointment in order to answer your questions and sign the documents with you. The attorneys at Baumstark & Vincent, PLLC, work from 9:00 a.m. to 9:30 p.m. and do evening appointments as well as morning and afternoon. Although there are a significant number of appointments you must attend in order to file a bankruptcy you should not have to take any time off of work since Baumstark and & Vincent is open 12 hours a day. Then the bankruptcy is filed. The bankruptcy hearing is twenty to forty days after the filing . A Chapter 7 bankruptcy from the time it is filed until the time it is discharged is generally 4-6 months. A Chapter 13 bankruptcy can be any length of time up to five years but is generally a 3-5 year repayment plan.

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15. Do I need to see a credit counselor before I file bankruptcy and what does it cost?
With limited exceptions you must meet with a credit counselor before you file a bankruptcy. However, you do not have to meet with a credit counselor before obtaining legal advice from a bankruptcy attorney. If you come to Baumstark & Vincent, PLLC, for one of our free consults an attorney at our office will meet with you and provide you with information about bankruptcy as well as credit counseling. If it is determined that a credit counseling program is in your best interest then the Baumstark & Vincent attorney will refer you to an appropriate credit counseling service. If it is determined that a bankruptcy should be filed on your behalf then there is a mandatory education requirement with a credit counselor which the attorney will discuss with you at the free consult .

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16. Can I continue to pay a discharged debt?
Yes you can. There is nothing illegal or immoral about continuing to pay a discharged debt even if it is to a family member. This is a very common occurrence. When you obtain a bankruptcy discharge it means you do not have a legal obligation to pay discharged debts. However, if you wish to pay a discharged debt that you have no obligation to pay then that is your business.

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17. Can I repay my retirement loans if I file a bankruptcy?
Yes you can. In both Chapter 7 and Chapter 13 you can continue to repay your retirement loans.

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18. Can I be discriminated against in terms of my employment if I go bankrupt?
It is illegal for a private employer to discriminate in employment on the basis of bankruptcy. Public employers however, are allowed to discriminate under certain circumstances.

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19. Will I be able to get a car loan after I go bankrupt?
It is extremely common for people who have received a discharge from the bankruptcy court to obtain a car loan immediately or shortly after receiving their discharge. It is also common for a person who has been bankrupt to pay a very high interest rate for a vehicle loan. It is certainly true that a great many people who file bankruptcies are able to obtain a car loan much more easily after they receive the discharge than they would have before they filed. This is because when a person files a bankruptcy and receives a discharge they no longer owe creditors any money so their debt to income ratio improves. Furthermore, if a person files a Chapter 7 bankruptcy they cannot file another one for the next 8 years. If they file a Chapter 13 bankruptcy they cannot file another Chapter 13 and receive a discharge for 4 years. While this restriction of a debtor's rights is bad for the debtor it is good for their credit in the sense that they are a better credit risk because they do not have debt and cannot re-file a bankruptcy. This is why many people obtain car loans after bankruptcy which they could not obtain prior to the bankruptcy.

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20. Will I be able to get a mortgage after I go bankrupt?
The answer to this question depends a great deal on your life circumstances after you file a bankruptcy. For any mortgage loan a potential debtor's income, debts and assets all come into play when a mortgage loan is considered. Many Americans each year receive mortgages despite the fact that they have gone bankrupt in the past.

21. How long is a credit counseling certificate good for in bankruptcy?
180 days.

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22. What do I have to do to obtain my credit counseling certificate?
You must have a meeting via internet, e-mail, in person or over the phone with any one of a number of accredited credit counseling agencies. The attorneys at Baumstark & Vincent, PLLC, will provide you with the phone numbers and other contact information for those credit counseling agencies at your free consult. You would also see information regarding credit counseling in the links section of this website.

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23. Are people ever denied their discharge?
Yes. There are a number of reasons why a court may deny a person their discharge. The most serious of these is perjury. If it is determined that a debtor provides false information regarding their income, assets or any other matter then that can be used as a reason to deny them their discharge. Furthermore, failure to comply with the order of the court, failure to comply with the bankruptcy code or provide necessary exhibits can also result in denial of a discharge. Sometimes it is determined that a person does not need to file a bankruptcy or they file a Chapter 7 bankruptcy and it is determined that they should have filed a Chapter 13 bankruptcy. These are all types of denials. Sometimes a person files a bankruptcy and their circumstances change while they are under the court's jurisdiction such as they receive a much better job or become married to a person with significant income. The bankruptcy Judge will take into account all changes and conditions which occur over the time jurisdiction of the court. It is extremely rare for a debtor to be denied their discharge in bankruptcy.

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24. Can my discharge be revoked?
Yes. Your discharge can be revoked if it is found that you perjured yourself in court or in your written sworn statements or if you failed to comply with orders of the court, if you failed to honor agreements you've made with the court or Trustee.

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25. How do taxes work in bankruptcy?
Income tax debts from the last 3 income tax years are non-dischargeable in bankruptcy Chapter 7. In Chapter 13 a person can create a special class for such creditors and can pay the non-dischargeable taxes in full. Property taxes are a tax on a piece of real estate and goes with the real estate. In a Chapter 7 if a debtor decides to keep their residence and mortgage then they are also keeping their property tax obligation an must be come current upon it. Or they will ultimately lose their house in property tax sale. In a Chapter 13 which is repayment plan bankruptcy a person can create a property tax class of claim and pay the property tax in full and as well as create a property tax escrow so that future property taxes are paid on time.

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26. Can I be discriminated against in terms of my employment if I go bankrupt?
It is illegal for a private employer to discriminate in employment on the basis of bankruptcy. Public employers however, are allowed to discriminate under certain circumstances.

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27. How does a Corporate or Limited Liability Company (LLC) chapter 7 bankruptcy work?
If a business is so far in debt or have other problems so overwhelming that they can't continue their business operations. They are likely to file under Chapter 7 and liquidate their assets which are then sold by a court appointed trustee and the proceeds are then paid to the creditor. Prior to filing a business bankruptcy a corporate officer/owner must review the Business's financial records. The filing corporate Officer should check if the Business has given any gifts in the last two years to friends or family members. If so, these gifts can be recovered on behalf of the bankruptcy estate and sold. The proceeds of said sale would be distributed to your creditors. Second the filing corporate Officer should check to see if any monies were paid to any insiders, either by repayment of loans or in salary in the year before the filing, can also be recovered for the benefit of the bankruptcy estate. Any deeds transferred within 6 years prior to the filing or title transfers within 2 years can also be recoverable if they were for less than fair market value under the fraudulent conveyance statute. A business is not allowed to conduct business once the business has filed the bankruptcy without the express permission of the Court which is rarely granted. If your business is still open, you must close it before you file the bankruptcy. The business is not entitled to keep any assets or equity therein. As a corporate officer it is important that you anticipate that all assets of the business will be liquidated. The trustee, after the liquidation of assets, pays administrative and legal expenses. The remainder of the proceeds goes to the creditors. Secured creditors will have their collateral returned to them unless the assets are worth more than is owed on the debt. Then the asset wills be sold and the secured creditor will be paid in full and the remaining proceeds go to the remaining creditors. If the value of the collateral is not sufficient to repay them in full, they will be grouped with other unsecured creditors for the rest of their claim. Bondholders, and other unsecured creditors, will be noticed of the Chapter 7 filing and invited to file a proof of claim. It is advised that thes creditors should file a claim in case there's money remaining in the estate for them to receive a payment. Stockholders do not have to be notified of the Chapter 7 case because they generally don't receive anything in return for their investment. But, in the unlikely event that creditors are paid in full, stockholders will be notified and given an opportunity to file claims.


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28. How do I value my assets in a bankruptcy?
The value of your personal property that is collateral for a debt (a debt where the creditor could reposes the item if you stop making payments, such as a car, furniture or computer equipment being purchased on collateral) is determined based on the replacement value of such property as of the filing date of the bankruptcy case without deduction for selling or marketing costs. If the item was acquired for a personal, family, or household purposes, replacement value is the price a retail merchant would charge for an item of that kind, considering the age and condition of the property at the time its value is determined. So, the value of the car, the furniture, the computer or anything else that you wouldn't own until its paid off, is not what you paid for it, it is not what you could sell it for at a flea market. The value is what you would have to pay a retail store selling similar items and a similar age and condition. Most retail stores do not sell use items. However, there are usually stores and the area selling used furniture, musical instruments, cars and similar products. Further, you may be able to use the internet to determine what those items are being sold on the internet for. You might be able to provide a good estimate of the value of one of your items by inquiring at such a store and or on the internet. If you can't find a store and or the internet that sells similar items in similar condition, the next best source for an objective appraisal is probably E-bay or a similar on-line marketing site.

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29. Do I have to have all my taxes filed to go bankrupt?
In Chapter 7 or Chapter 13 cases debtor's are required to provide the Trustee, no later than 7 days before the date first set for the initial hearing (meeting of creditors), a copy of the Federal Income tax return, or a transcript of such return, for the most recent tax year ending immediately before the case is filed. However, the Trustee appointed to your case may request additional tax returns as they deem appropriate and/or necessary. Further, a debtor is required to provide to the Judge or any interested party requesting it, copies of any tax returns filed during the pendency of the case, or if filed late, the tax returns for the 3 years preceding date filing of a bankruptcy.

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30. Can I eliminate payday advance loans in bankruptcy?
Yes. Typically payday advances are not looked at as a check that is written for promises of immediate payment but rather a loan until such monies is received. However, the debtor cannot fraudulently fill out the application for a payday advance and expect a discharge.

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31. Are there advantages in terms of my car loan, if I file a bankruptcy?
If a creditor files a Chapter 13 bankruptcy and the creditor has a lien on their vehicle and that lien was incurred within 910 days proceeding the date of the filing of your Chapter 13 case, and the collateral for the debt consist of a motor vehicle acquired for personal use of the debtor, or if the collateral for the debt consist for any other thing of value, if the debt was incurred during the 1 year period proceeding the filing, in other words in a Chapter 13 plan you may cram down any vehicle purchased within 910 days of filing or any other secured claim that was purchased within 1 year of filing. Should the debtor have any secured debt other than a mortgage and the value of the collateral is less than the debt owed, the Chapter 13 plan can provide payments to the creditor with interest in the amount of the value of the property. Upon completion of the plan, the cram down claim against the debtor's property no longer remains.

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32. What can bankruptcy do and not do?

Bankruptcy can make it possible for financial distressed individuals to:

  • Discharge liability for most or all of their debt. When the debt is discharged, the debtor has no further legal obligation to pay the debt.
  • Stop foreclosure actions on their home and allow them the opportunity to catch up on missed payments.
  • Prevent repossession of a car or other property, or force the creditor to return the property even after it has been repossessed.
  • Stop wage garnishment and other debt collection harassment, and give the individual some breathing room.
  • Restore or prevent termination of utility service.
  • Lower the monthly payment on debts such as car loans.
  • Allow debtor's an opportunity to challenge the claims of certain creditors who have committed fraud or who are otherwise seeking to collect more than the are legally entitled to.

Bankruptcy, however cannot cure every financial problem. It is usually not possible to:

  • Eliminate certain rights of secured creditors. Although a debtor can force secured creditors to take payments over time in the bankruptcy process, a debtor generally cannot keep the collateral unless the debtor continues to pay the debt.
  • Discharged types of debt singled out by the Federal Bankruptcy statute for special treatment, such as child support, alimony, some student loans, certain court ordered payments, criminal fines, and some taxes.
  • Protect all co-signers on their debts. If relatives or friends co-sign a loan which the debtor discharged in bankruptcy, the co-signer may still be obligated to pay the loan.
  • Discharged debts that are incurred after bankruptcy has been filed.

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33. How do I determine my necessary living expenditures?
Total up all expenses for the last 6 months then divide by 6 to obtain a monthly average. Expenses include all of your reasonable necessary costs of living such as rent or mortgage, utilities, food, transportation, etc. Do not include in your expenses payments for credit cards, repayments of personal loans, delinquent medical bills, taxes, store charge accounts, business debts, or other non-regular expenses not included as a necessary living expense. At Baumstark and Vincent you will be provided a list as to what expenses are included.

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34. What is a reaffirmation agreement?
Even if a debt can be discharged, you may have special reasons why you promise to pay it. For example if you want to work out a plan with a bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or any other law. Reaffirmation agreements must be voluntary; must not place to heavy a burden on you or your family; must be in your best interest; and can be cancelled any time before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time. If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it. If you reaffirm a debt and fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.

35. If I'm in a Chapter 13 can I convert to a Chapter 7?
If a debtor is in a Chapter 7 bankruptcy and there is a change in circumstances for example the debtor loses a job, additional children or some other change in their life that affect their ability to earn income and/or increase in their expenditures, where the debtor no longer has sufficient income to pay into a Chapter 13 plan that debtor may motion the court to convert as a right to Chapter 7 of the Bankruptcy Code.

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36. How does child support and child support arrearages work in bankruptcy?
If a debtor files a Chapter 7 bankruptcy, the amount of child support will still be due and owing despite the filing of the bankruptcy. In other words, the Chapter 7 bankruptcy filing will have no effect on the amount owing for child support. If a debtor files Chapter 13 bankruptcy and owes child support, then claims owed to a spouse, former spouse, child, parent or legal guardian or responsible relative of the child are given priority over claims assigned to a governmental unit. Support owed to or recoverable by a spouse, former spouse, or child is given priority over support obligations that have been assigned or owed directly to a government unit. A Chapter 13 case may be dismissed or converted, or discharged denied, in the event the debtor fails to make required post petition domestic payments.

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37. Will bankruptcy stop my mortgage foreclosure?
Yes. A Chapter 13 bankruptcy will stop foreclosure actions on your residence and allow you the opportunity to catch up on the missed payment through a 3-5 year Chapter 13 plan. However, you must show the United States Trustee that you can maintain your ordinary monthly mortgage payment, make up all arrearages on your mortgage prior to leaving the plan, and pay a meaningful repayment to your unsecured creditors prior to leaving your plan. Keep in mind a debtor must be in a plan for at least 3 years and no more than 5 years.

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38. Will bankruptcy stop my wage garnishment?
Yes, once you file a bankruptcy an Automatic Stay goes into place which is a Federal order to your creditors that they can no longer call you, garnish you, write to you, or have any contact with you without permission from the court. The garnishment will stop upon the filing of the bankruptcy.

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39. Will bankruptcy stop the IRS?
Yes. State and Federal income taxes are treated equally when it comes to discharge ability. An income tax will be dischargeable if all the following conditions exist: (1.) The tax in questions is more than 3 years. The 3 year period is computed from the most recent date the return is due for the tax year (April 15 of the year following the taxable year, generally). An extension to file the return delays the start time. (2.) A tax return or equivalent report or notice, if required, has been filed or given by the tax payer for the tax years in question at least more than 2 years preceding the bankruptcy. (3.) The tax claim was assessed at least more than 240 days preceding the filing date of the bankruptcy. (4.) The tax return in question was not fraudulent. (5.) The tax payer has not engaged in activity deemed to be a willful attempt to defeat or evade the tax. (6.) The tax liability, other than of a kind specified in 11 USC 523(A)(1)( B) (return or equivalent report or notice if required, not filed or given or filed or given late but within 2 years of petition filing date or 11 USC 523(A)(1)(C) (fraudulent return or debtor willfully attempted to evade taxes) remains assessable, but was not assessed, as of the petition filing date. Please note that certain events will toll the possible discharge of a tax. First, a prior bankruptcy case for any time during which a stay of proceeding against collection was in affect will toll the 3 year period and the 240 day period (along with an additional 90 days to the 240 day period). Second, an extension of filer return will also toll the 3 year period. Third, tax litigation, because it delays the assessment, will toll the 240 day assessment period. Fourth, an offer in compromise will toll the 240 day period, and add 30 days, for a taxable year ending on or before the petition filing date. The offer in compromise must either have been pending at any time with respect to such tax during such 240 days or in effect during that 240 day period.

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40. Will bankruptcy impact my divorce?
When a debtor files a bankruptcy, the bankruptcy proceeding automatically stays or stops virtually any attempt to collect a debt or property from the debtor or to enforce claims against the debtor. However, there are exceptions to the automatic stay. First, proceedings to a establish or enforce support obligations, domestic violence proceedings, paternity proceedings, and a number of other proceedings are exempt from the stay, and may continue in State court even if there is a bankruptcy. Next taken in violation of the Automatic Stay are void. Some courts have held that divorce proceeding may continue dissolve the bonds of matrimony, since it's equitable power is entirely within the province of State Courts, but the Automatic Stay nonetheless prohibits the State Court from making any property division. Therefore, the Automatic Stay continues to apply to actions to enforce property settlement. A Bankruptcy Court may sanction a willful violation of the Automatic Stay with damages, costs, attorney fees, and punitive damages. The Bankruptcy Court cannot discharge child support and alimony. Further, property settlement debts owed to a spouse, former spouse, or child are non-dischargeable under Chapter 7 of the Bankruptcy Code. However, property settlements in a Chapter 13 may be modified and the obligations paid at the same percentage all other creditors are paid in your Chapter 13 plan. In negotiating, drafting and finalizing divorce judgments it is important that your divorce attorney should be alert to the potential impact of bankruptcy. It is important that you always consult with a bankruptcy attorney if you are planning to get a divorce prior to, during or after filing a divorce case or if a spouse has filed or is filing a divorce case you should also speak to a bankruptcy attorney. Many times, the divorce attorneys aren't familiar with the bankruptcy laws and may fail to maximize the advantages in your divorce judgment due to his unfamiliarity with the bankruptcy laws.

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41. If I'm going through a bankruptcy and a divorce should I use the same law firm?
If you are filing a bankruptcy with your spouse during a divorce you cannot use the same law firm as both your divorce attorney and bankruptcy attorney without the other parties consent. However, an attorney experienced both in divorce and bankruptcy will be more perceptive to negotiating, drafting, and finalizing divorce judgments that anticipate the potential impact of bankruptcy. In contested cases, divorce lawyers should consider asking the divorce court to make specific findings of facts and conclusions of law on the record to clarify the need for support and to clarify the obligations that are intended as support. It is important if bankruptcy is a possibility for either party, parties should attempt to make a record for fair consideration exchanged between the parties to support the settlement, so the creditors cannot later attack the settlement on those creditors. In addition, in many cases its appropriate to include (an anti-bankruptcy) clause in a divorce judgment. These clauses reserve or create a spousal support obligation that will arise if a property settlement obligations is discharged in bankruptcy. Such clauses attempt to get around the discharge of a property settlement obligation by creating a non-dischargeable spousal support obligation in its place.

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Baumstark & Vincent, PLLC
1801 E Saginaw Street, Suite 1
Lansing, Michigan 48912
Phone: 517-482-7395
Fax: 517-484-1598

Hours of Operation:
Monday thru Friday
9 am-9:30 pm
Baumstark & Vincent, PLLC

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