Decatur and Huntsville Bankruptcy Questions and Answers
Ferguson & Ferguson
Attorneys at Law
Alabama Bankruptcy FAQ’s presented by a Huntsville, Alabama bankruptcy attorney. While most of these frequently asked questions (FAQs) are general to bankruptcy across the country, some of the answers will be specific to Athens, Decatur, Huntsville, Cullman and Scottsboro, Alabama bankruptcy laws. You should always consult with a bankruptcy attorney in your area to properly assess your personal bankruptcy situation.
What is bankruptcy?
Bankruptcy is a legal proceeding in which a person or corporation (the debtor) who is unable to pay his or her bills (the creditors) can get a fresh start. Bankruptcy is started by filing a petition with the Federal Bankruptcy Court. The petition discloses all of the debtor’s financial affairs including assets and liabilities(bills). Filing bankruptcy will immediately and instantly, though sometimes only temporarily, stops creditors from seeking to collect debts. Bankruptcy may also eliminate a debtor’s obligation to pay many, if not all, debts incurred prior to the bankruptcy filing.
Who can file for bankruptcy in Alabama?
Any person, partnership, corporation, business trust, charitable or social organization can file for bankruptcy. You do not have to be a United States citizen to file for bankruptcy. You must reside or have a domicile, a place of business, or property in the United States or a municipality. You must not have been granted a Chapter 7 discharge within the last 8 years or completed a Chapter 13 plan. You must not have had a bankruptcy filing dismissed for cause within the last 180 days. It must not be a “substantial abuse” of Chapter 7 to grant the debtor relief. Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7. It would not be fundamentally unfair to grant the debtor relief under Chapter 7.
How do I select a bankruptcy attorney?
You need to make sure you are comfortable with the attorney you hire. Does the attorney have the experience and expertise to handle the problems that may arise in your case? Is the attorney handling the case, or are they delegating the work to secretaries or paralegals?
Should I hire the cheapest attorney I can find?
If you are hiring an attorney just based on paying the lowest fee, they are most likely merely a “petition preparer” or “bankruptcy mill” and they will not be around when problems arise. We often get calls from unhappy people because their attorney won’t call them back after they are retained. If you pick an attorney based solely on their fee, we cannot fix the problem for you down the road. The overriding decision on who to select should not be based solely on the fees charged. We will always be here if you hire us to handle your bankruptcy.
What is the automatic stay?
This is an injunction that goes into effect automatically upon the filing of a bankruptcy. It strictly prohibits the commencement or continuation of any acts to collect on a debt that arose prior to filing the bankruptcy. This includes enforcement of judgments, creating or perfecting liens, and many other actions. (It does not apply to collect alimony maintenance and support).
Does the automatic stay always apply when a bankruptcy case is filed, and if so, for how long?
Generally, the automatic stay goes into effect immediately upon filing your case and;against acts taken towards you personally until you receive your discharge. Stays against actions towards property you own may last longer or shorter depending on what happens to that property during your case (e.g. it is sold by the Trustee or not, etc.).Note: For cases filed on or after October 17, 2005, there are several limits to the length of the automatic stay: 1. If you had a prior bankruptcy case dismissed under any chapter within one year prior to the filing of your present case, the automatic stay will terminate 30 days after your new case is filed, unless you obtain a court order extending it, for cause and a showing of good faith as to why the prior case was dismissed. 2. If you had more than one prior bankruptcy case dismissed under any chapter within one year prior to the filing of your present case, the automatic stay does not go into effect at all unless and until the court orders it into effect, after a noticed hearing. There are other new limitations on the automatic stay, but you should check with your attorney as to whether they will affect you.
How often can a person file for bankruptcy?
Certainly, repeat filings are discouraged by the bankruptcy court and will be more strictly scrutinized under the new bankruptcy law. Chapter 7 bankruptcies may only be filed every eight years. There is no time limitation in Chapter 13 filings at the present time.
How long must I be a resident to file bankruptcy?
You must be a resident in the state in which you are filing for the last 90 days. If you have not resided in the state that long, you can only file in the state where you have resided, or which has been your principal place of business or which has been the location of your principal assets for the majority of the last 180 days.
I owe more than I can pay, what can I do?
Filing bankruptcy may be the best choice for you because, in bankruptcy, you can seek to discharge (forever make unenforceable against you personally) credit card debts, medical debts, many kinds of contract debts, and tort debts for negligence.
Is it too late to file bankruptcy if I’m being sued or already have a judgment against me?
No. It’s almost never too late to file bankruptcy. Assuming that it is a dischargeable debt,(meaning one that isn’t incurred through fraud, or a domestic support obligation, or one of the others Congress has excluded from discharge), you can still get rid of the debt even if a creditor has filed a lawsuit against you and gotten a judgment. You can even get rid of the debt if they have a lien against your property (although the lien will remain against the property unless you are able to remove it during the bankruptcy proceeding.
What does it mean to bankrupt or discharge a debt?
Many people refer to getting rid of their debts in bankruptcy as “bankrupting” the debt. They often ask “can I bankrupt this debt?” That is incorrect terminology. The legal term for this is “discharge”. What happens in bankruptcy (assuming you are successful) is that your legal obligation to pay on your debt will be discharged. Debts are never technically eliminated. They still exist after a bankruptcy, but you no longer have the legal obligation to pay on the ones that are discharged (or, bankrupted if you prefer).
I am married, do I have to file with my spouse?
No. You have to be married to file a joint petition. However, if you are married you may file jointly or individually. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. In cases where real property has involved the question regarding a joint bankruptcy is beyond the scope of this FAQ, see an attorney.
Can Co-Signers Be Protected In Bankruptcy?
In chapter 7 bankruptcies, creditors can still proceed with collection efforts against co-signers. In chapter 13 the co-signor is protected if the debt is consumer debt incurred in the ordinary course of business, and the co-signer can’t benefit from the proceeds of the debt. The debtor must also pay the chapter 13 plan agreement.
What are exemptions?
Exemptions are protected allowances for the value in certain assets. For example, a homestead exemption protects the equity you have in your home, up to a certain value. All States including Alabama have different exemption laws which protect the value in certain assets. You need to check with a qualified bankruptcy attorney regarding what exemptions you are entitled to when you file your case. Which State’s laws you use depend on where your domicile was located for the 2 years prior to commencing your bankruptcy case.
Can I pick and choose who to include in my bankruptcy case?
Absolutely not. You must list all your assets and all your debts in any chapter of bankruptcy. You may voluntarily repay anybody you want after your case is concluded (and you are required to repay any debts that are not discharged), but you are still required to list all your creditors.
I can’t make even my minimum monthly payments on my credit cards, personal loans, and medical debts, and all these creditors, and their bill collection companies, are phoning me all the time, and writing me threatening letters, saying they are going to sue me, unless I pay them, and I don’t have money to pay them, what can I do?
Filing bankruptcy may be the best choice for you, to seek to discharge (forever make unenforceable against you personally) credit card debts, medical debts, many kinds of contract debts, and tort debts for negligence.
Can I get rid of back taxes through bankruptcy?
In a Chapter 13 bankruptcy plan, while being repaid, the debt will be frozen, meaning that interest and penalties will stop.
Can I transfer assets out of my name into someone else’s before filing bankruptcy?
Not unless they are sold for “reasonably equivalent value”. Otherwise, it can be recovered as a fraudulent transfer.
Can you be fired or denied employment because of a bankruptcy?
No. While an employer can usually find some reason to fire anyone, they cannot use bankruptcy as a basis for doing so. This is set forth in Section 525 of the Bankruptcy Code.
Can I remove liens against my property?
Under certain circumstances, judicial liens and “nonpossessory, nonpurchase-money security interests” may be removed if, based on the value of the asset and the number of senior liens and encumbrances against it on the date your bankruptcy case is filed, the fixing of the lien causes it to “impair” an exemption to which you are entitled under State (or other applicable) law.
Are any and all debts dischargeable in a bankruptcy case?
No. There are many debts which Congress has excluded from discharge. These are the main types excepted from discharge, although there are others.
Can you be denied a student loan because you or your parents file bankruptcy?
No. Section 525 of the Bankruptcy Code prohibits discriminatory treatment by any governmental or other student loan program on the basis of filing a bankruptcy. In other words, a student loan agency cannot deny your loan application based on the filing, by you or anyone you know, of a bankruptcy.
I’m behind on my mortgage payments, and my house is about to be foreclosed by my mortgage lender, what can I do?
Filing bankruptcy may be the best choice for you, and may save your house from being sold at a foreclosure sale by your mortgage lender.
I was unemployed for a while and got behind on my car payments, and the car lender is going to repossess my car before I can get caught up on my car payments, what can I do?
Filing bankruptcy will give you the immediate protection of the bankruptcy automatic stay, which will stay (stop) the car lender from repossessing your car, so long as the bankruptcy automatic stay is in effect.
What is the difference in a Chapter 7 and Chapter 13 bankruptcy?
A Chapter 7 bankruptcy, sometimes called Liquidation or “Straight Bankruptcy,” allows most debt to be eliminated in approximately a four-to-five-month period. The major benefit of chapter 7 is to “discharge” or get rid of unsecured debt such as credit cards and medical bills. Some debts cannot be discharged in a Chapter 7 bankruptcy. Some examples of debts that cannot be discharged under a Chapter 7 bankruptcy are alimony, child support, student loans, and tax debts. A Chapter 13 bankruptcy involves a repayment of some or all of your debt through the office of a bankruptcy trustee over a period up to five years. All types of debts may be paid in a Chapter 13 bankruptcy. You must ultimately decide for yourself whether filing bankruptcy is the proper action to take, and if so, which Chapter is better for you.
Some of the factors to consider are as follows:
If you are not making more money than you need for your current living expenses (you have no “disposable income”), Chapter 13 is not a realistic option. Chapter 7 has the advantage of wiping the slate clean and enabling you to embark on your “fresh start” immediately. With Chapter 13 you will be making payments for three to five years. If you have a particular asset that you want to keep and that is valued above the allowable exemption then Chapter 13 may be the only alternative. For example, if you own a house with significantly more than $25,000.00 in equity and you don’t want to lose it, Chapter 7 probably will not work. If you are trying to ward off repossession or a foreclosure, Chapter 7 will not help you, and you will need to file a Chapter 13. If your debts are primarily consumer debts, and if your budget reveals that after filing bankruptcy your income substantially exceeds your expenses, it is possible that the United States Trustee could file a motion to dismiss the Chapter 7 case for “substantial abuse.” In such a case Chapter 13 may be the better alternative.
What is a means test?
The bankruptcy “means test” determines whether your income is low enough for you to file a Chapter 7 bankruptcy. It is a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy.
Can I max out all my credit cards, file for Chapter 7 bankruptcy, and never pay for the things I bought?
That’s called fraud, and it’s against the law.
Is it true that I can wipe out all my bills in bankruptcy?
The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding. Not all debts are dischargeable in bankruptcy. Generally speaking, the following debts will not be discharged: Spousal; Taxes; and Child Support; Debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; Student loans; Criminal fines and penalties and Forfeitures. Further, those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases, if the debtor’s equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation.
Schedules of your income, expenses and all of your property are required as a part of your bankruptcy petition. If you have excess income or property over your allowed exemptions you are often required to file a Chapter 13 rather than a Chapter 7.
What are the most common reasons for a Chapter 7 bankruptcy?
The most common reasons for consumer bankruptcy are: Large medical expenses; unemployment; seriously over extended credit; marital problems and other large unexpected expenses.
Can I stop the bill collectors from calling?
One of the major benefits of filing for protection under Chapter 7 is that many creditor actions are stayed. This means that debt collection efforts and foreclosure are halted.
How long after I file will the creditors stop calling?
Once a creditor or bill collector becomes aware that you have filed for bankruptcy protection, he/she must stop all efforts to collect the debt. After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditor immediately. If a creditor continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for this conduct.
How long do bankruptcy cases take in Alabama?
Chapter 7 bankruptcy cases take 2-6 months to complete. Chapter 13 bankruptcy, which are repayment plans, generally last 3-5 years.
Will I lose my job?
No. Bankruptcy laws prohibits discrimination based upon a debtor filing for protection under the bankruptcy laws.
Can I go to jail if I file bankruptcy?
No. There are no debtor’s prisons in the United States.
Will my employer find out about my bankruptcy?
Under normal circumstances, unless your employer is a creditor, your employer will not know about your bankruptcy. However, if you file a chapter 13 bankruptcy, a payroll deduction order will be sent to your employer.
Can I keep my car after bankruptcy?
Depending upon which exemption scheme is selected, you make keep your car if your equity is equal to or less than the allowed exemption. When calculating your equity you should use the N.A.D.A. or a comparable guide. Once you know the value, then subtract the amount owed from the value to calculate the equity. Generally, most courts understand that you need a car to work to get back on your feet. Apply rules of common sense here: If you own expensive cars which are free and clear and worth thousands of dollars, you are probably not going to be able to keep them. If, on the other hand, you have a car worth $7,500.00 and you owe $6,000.00 on it, you will most likely keep it. Again, make sure you hire the right lawyer. Most leased vehicles have no equity and therefore are entirely exempt. If you owe money on your car or it is leased you must still make the payments. In those instances, you will have to redeem or reaffirm the property to keep it. However, in some circumstance, your representative can re-negotiate the loan or the lease to get a more favorable deal for you.
Can I keep my house if I file bankruptcy?
If you file before the foreclosure sale date, the bankruptcy 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.
Can I keep my credit cards after bankruptcy?
No. You can not keep credit cards after filing for bankruptcy.
Is my income and my property considered when determining which bankruptcy chapter should be filed?
Schedules of your income, expenses and all of your property are required as a part of your bankruptcy petition. If you have excess income or property over your allowed exemptions you are often required to file a Chapter 13 rather than a Chapter 7.
Will bankruptcy stop a wage attachment?
Will bankruptcy stop a civil judgment?
Yes. Most but not all civil judgments are stopped by bankruptcy.
I am a co-signer for a debt, how does bankruptcy affect my obligation?
If the debt is a dischargeable debt then you will not have to pay it. However, the cosigner will become primarily responsible for the debt. Be sure to list the co-signer as a creditor in your schedules as they have a contingent claim against you.
Will I lose my personal property, real property, and assets if I file a bankruptcy?
Not necessarily. The State of Alabama allows you to exempt presently up to $5,000 in real property and $3,000 in personal property in addition to other basic items like clothing and family photographs. However, if you have property over and above your exemptions, the bankruptcy court can take the property, sell it, pay off your creditors, give you your exemption back and keep the rest for other creditors. Usually paying the value of said property over and above the exemptions into a Chapter 13 plan will prevent you from losing the property. Once the bankruptcy is filed, all the property of the debtor at the time of the filing and certain other property to be received in the future, becomes the property of the bankruptcy estate. This means that the bankruptcy trustee will take control of this property for purposes of satisfying the creditors. There is certain property which is either excluded or exempt and the debtor will be able to keep it. Property or asset exemption are determined based upon your situation, income and the laws of your state. The best way to determine which property to keep requires a detailed analysis of your situation. Make sure you hire the right lawyer.
Who notifies the creditors and bill collectors?
After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your attorney inform the creditors immediately.
Are there any debts that I can’t wipe out in bankruptcy?
Yes, there are certain debts that are not dischargeable in bankruptcy. Generally speaking, the following debts will not be discharged: Taxes; Spousal and Child Support; Debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; student loans and criminal fines, penalties and forfeitures. Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases, if the debtor’s equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation.
Do I have to go to court?
Yes. About 30 to 40 days after you file the bankruptcy you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing, the trustee will ask questions under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will be permitted to question you. Do not worry, your attorney will be there to represent you and your attorney will help you prepare for the hearing. Sometimes, after your hearing is over, various creditors will approach you to discuss the status of secured property. Your attorney will negotiate with them, with your knowledge and approval. After this hearing, you will normally not need to return to court. However, if a creditor files a motion or an adversary action, most likely you will have to return to court. This is the exception and only your attorney can determine if this is likely to happen.
When does the Bankruptcy Court issue the discharge to debtors, in Chapter 7 bankruptcy cases?
The Bankruptcy Court issues the discharge to the Chapter 7 debtor approximately 75 days after the debtor’s 341a examination date, unless within 60 days after the debtor’s first 341a meeting date, a creditor, Trustee or US Trustee has filed an adversary proceeding against the debtor, asking the Bankruptcy Court to deny the debtor a discharge.
What are the grounds for the Bankruptcy Court denying the debtor a discharge in a Chapter 7 bankruptcy case?
The grounds for denying a discharge of listed in 11 USC §727. The most common grounds for denying a Chapter 7 debtor a discharge are (1) that the debtor lied in his/her Chapter 7 bankruptcy petition, schedules or other pleadings filed in the bankruptcy case; or (2) that the debtor lied in the debtor’s 341a meeting, where the debtor is examined under oath by the debtor’s Chapter 7 Trustee (creditors can also ask the debtor questions under oath at the 341a meeting); or (3) that the debtor fraudulently transferred property within 1 year before filing bankruptcy; or (4) the debtor fails to supply information or documents that the Trustee requests the debtor to supply, or fails to turn over non-exempt property that the Trustee wants to sell to the Trustee, upon request of the Trustee; or (5) the debtor has already received a Chapter 7 discharge within the time period specified in Section 727, or (6) the debtor is a corporation or partnership and so is absolutely ineligible to receive any discharge in Chapter 7.
When does the Bankruptcy court issue the discharge to debtors, in Chapter 13 cases?
In Chapter 13, the debtor only receives a Chapter 13 discharge if the debtor proposes a Chapter 13 plan, the Bankruptcy Judge confirms (approves) that Chapter 13 plan, and the debtor fully performs the Chapter 13 plan, by making all the payments (usually a minimum of 36 months of payments; and a maximum of 60 months of payments. The Chapter 13 discharge, however, discharges kinds of debts-debts for fraud, conversion, embezzlement, breach of fiduciary duty, willful and malicious acts, and divorce property division debts-which are NOT dischargeable in Chapter 7, if the creditor timely complains that the debt should NOT be discharged, which the creditor will almost always complain timely.
What if a Chapter 13 debtor confirms a Chapter 13 plan, but then can’t complete making his/her Chapter 13 plan payments, because he/she gets sick, laid off, etc.?
A debtor who cannot complete making Chapter 13 plan payments may be able to move the Court for some relief but will need a competent bankruptcy attorney to tell the debtor what options the debtor has at that point, and to make the appropriate motion to the bankruptcy court seeking relief.
What happens after I file my bankruptcy?
Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 75 days after the First Meeting of Creditors.
Who deals with the creditors and bill collectors during the bankruptcy?
Your attorney deals with your creditors.
What if I forget to list a creditor on my bankruptcy papers?
You are permitted to file an amendment to your schedules up to a certain time before discharge. If the amendment is timely filed then the omitted creditor is added to the bankruptcy. It is perjury to intentionally omit a creditor. However, if you do not know that a creditor exists and there are no assets for your creditors, the debt will be discharged. This is a hassle after the fact, so be sure you be thorough and list everything. There could be additional costs to add a creditor.
After bankruptcy, can I get credit?
Sure. For a while though, expect to pay much higher interest and fees. There is a whole new mortgage industry springing into action loaning to people with less-than perfect credit.
What is a trustee?
A trustee is appointed to represent the best interest of your creditors. The trustee is given broad power under the law. He can set aside improper transfers of property, and can even recover money paid to creditors shortly before filing. The trustee makes sure that all creditors are treated fairly and equally in the bankruptcy proceeding. Most importantly, however, the trustee is responsible for collecting and liquidating certain valuable assets at a bankruptcy sale. Your creditors are notified of the sale and have an opportunity to bid or object to someone else’s bid. Sale proceeds are distributed to creditors based upon the classification and priority of their debt. Any money left over is returned to you after creditors and administrative expenses are paid.
What does reaffirmation mean?
Reaffirmation means a legal re-obligation to pay the debt as if the bankruptcy never occurred. In exchange for reaffirming the creditor will allow you to keep the pledged property because the creditor is assured payment. Reaffirming requires that you sign a written contract that is filed with the court. You will most likely want to reaffirm on your home and automobile, but not charge cards or other debts unless there is a good reason.
What is a secured debt?
A secured debt is a debt backed up by property. A home mortgage and debt for an automobile would be a secured debt.
What is unsecured debt?
Unsecured debt is not tied to any type of property, and the creditor can’t claim it if you file for bankruptcy. An unsecured debt would be any debt not backed by property like credit card debt, a personal loan or a medical bill.
Is child support dischargeable under a Chapter 7 bankruptcy?
No. Any debt “in the nature of support” arising from a divorce or child support case would not be dischargeable in Chapter 7.
Does my divorce decree protect me if my ex-spouse files a bankruptcy on joint debt we held during our marriage?
No. Your divorce decree does not bind your creditors. If your ex-spouse files a bankruptcy you should seek legal advice.
Are income taxes dischargeable in a Chapter 7 bankruptcy?
Recent taxes are not dischargeable in a Chapter 7 bankruptcy. However, some old tax debts, as well as interest and penalties, may be dischargeable. Taxes may be paid as a priority debt in Chapter 13.
Will filing bankruptcy affect my credit rating?
Absolutely. However, most debtors are able to rebuild their credit within a few years with on-time payments to the creditors that remain after the discharge. The bankruptcy is a judgment and will be listed for a period of up to 10 years after the discharge
How long will a bankruptcy show on my credit reports?
The Bankruptcy Court has no jurisdiction over credit reporting agencies. Bankruptcy filings usually remain on credit reports from 7 to 10 years.
Is there anything I should not do if I am contemplating bankruptcy?
There are several areas related to this question. You should consult your attorney. In particular, there are three items worth mentioning. Under bankruptcy law, certain luxury purchases over $1000 within 60 days of the bankruptcy filing are presumed nondischargeable. Under bankruptcy law, cash advances of $1000 within 60 days of the bankruptcy filing are presumed nondischargeable. Debts involving materially false financial statements are nondischargeable under certain circumstances.
How much does chapter 7 bankruptcy cost?
Chapter 7 Filing Fee: $306. Credit Counseling Fee:$42.00 individual or $50.00 husband and wife. Attorneys fees vary based the law firm.
How much does chapter 13 bankruptcy cost?
Chapter 13 Filing Fee: $281. Credit Counseling Fee:$42.00 individual or $50.00 husband and wife. Attorneys fees based on amount of plan.
If I need to file bankruptcy again, how long do I have to wait?
You must wait 8 years to file again or if your bankruptcy was dismissed you must usually wait for 180 days to refile.
Can you change from one chapter of bankruptcy to another?
You can convert a case one time to any other chapter you’re eligible for. If you change from Chapter 13 to a Chapter 7, some of your possessions may be part of the Chapter 7 estate (and can be taken and sold to pay your debts), even though they were safe from creditors under Chapter 13.
Are my bankruptcy records public?
Bankruptcy records are public and are not protected by any privacy regulations. No sensitive personal information will be released to 3rd parties but they will learn the particulars regarding your bankruptcy case.