CAN CREDITOR HARASSMENT BE STOPPED?
When a person gets behind in paying his or her bills, creditors often take various actions to collect. Creditors may call home or work, family, friends, fellow employees, or even your employers. Co-signers and guarantors may be called upon to make payment. Mortgage holders and other creditors may initiate foreclosure, or repossession of cars, furniture and appliances, or other items. Lawsuits and collection procedures may be started. Garnishment of wages or seizures of property or bank accounts may begin.
The filing of a bankruptcy or reorganization automatically stops collection efforts against you and your property. Once you file for a bankruptcy, creditors must stop all collection efforts, including phone calls, collection notices and garnishments. Foreclosures must stop, and repossession action must cease. If you file to reorganize your debts instead of a complete bankruptcy, collection actions can also be stopped against co-signers and guarantors on consumer-type debts. Only a few actions are not halted by a bankruptcy. Criminal proceedings cannot be stopped, and action to collect child support or alimony cannot be halted. However, a reorganization plan may provide a viable means of catching up on post-due child support or alimony.
CAN BANKRUPTCY STOP GARNISHMENTS IF THEY ARE ALREADY IN PLACE?
Yes, bankruptcy can stop garnishments. Even if a creditor already has a judgment against you and has begun to garnish your wages, such garnishment can be stopped immediately by the filing of a Chapter 7 or a Chapter 13 bankruptcy proceeding.
Under Iowa law, certain assets are exempt from legal process. This means that they are protected, and can not be taken from you if you own them or to the extent that you have equity in them. For example, each person who files can protect one motor vehicle up to a fair market value of $5,000.00. If you owe $2,000.00 to a creditor for the vehicle and it is worth $5,000.00, you can protect the $3,000.00 of equity with your exemption.
Generally speaking, a person can protect the equity in their home, most, if not all of their household goods and furnishings, clothing, the cash value of a their life insurance, retirement and pension plans, and the tools of their trade up to a maximum value of $10,000.00. To obtain further information on the complete list of exempt property and whether you could lose any property if your filed a bankruptcy, it is recommended that you contact an experience bankruptcy attorney.
If property is not exempt then it is not protected and a Chapter 7 bankruptcy trustee could sell this property and pay creditors with the proceeds.
If a person owns a significant amount of non-exempt assets they may be able to retain them by the filing of a Chapter 13 bankruptcy and paying their unsecured creditors at least the value of these assets.
WHAT DEBTS CANNOT BE ELIMINATED IN BANKRUPTCY?
Not all debts can be discharged by bankruptcy. Examples of non-dischargeable debts include: recent taxes, government fines, and debts to spouses, former spouses, or children for support, maintenance, or alimony. In addition, debts to creditors that are not informed of the bankruptcy proceedings are also non-dischargeable. For example, if you forget to list a creditor, that creditor will not be discharged. As a general rule, student loans are non-dischargeable, as are certain debts incurred through intentionally deceptive or malicious behavior of the debtor. Also, debts that arise from damages or injuries to another involving drunk driving are non-dischargeable.
Generally, under Chapter 7, these debts cannot be discharged. However, Chapter 13 allows one to repay these debts over an extended period of time.
Also there are some limited exceptions where these types of debts can be discharged in Chapter 7.
HOW CAN BANKRUPTCY STOP REPOSSESSION OF MY CAR OR OTHER PROPERTY?
When a bankruptcy proceeding is filed, your creditors must back off and leave your secured property and other assets alone. Creditors cannot legally repossess collateral or seize assets once the automatic stay of bankruptcy has been imposed by the court. This is true even if the creditor would have otherwise had the right if you had not filed for bankruptcy. If a creditor wants to repossess an asset, it must first obtain approval of the court. This process can take several weeks once the motion for relief from stay is filed. In Chapter 13 proceedings, creditors will be barred from taking your property as long as you are making your Chapter 13 plan payments and complete the Chapter 13 plan. Sometimes it is even possible to have a repossessed item returned, if it has not already been sold.
DO BOTH HUSBAND & WIFE HAVE TO FILE BANKRUPTCY?
Even if you are married, you are not obligated by the federal bankruptcy laws to file a joint petition with a spouse. Married people can file separate bankruptcies, or one spouse can file bankruptcy alone. However, if both spouses are responsible for an obligation, and only one spouse files for bankruptcy, creditors have the right to come after the non-filing spouse as if bankruptcy had not been filed. In circumstances where parties have recently married and a substantial portion of the outstanding debts are related to only one of the spouses, having been incurred prior to the marriage, it may be advisable for just one spouse of the marriage to file a bankruptcy.
HOW LONG DOES A BANKRUPTCY CASE TAKE?
Usually a Chapter 7 bankruptcy takes about 3 months to complete, and with a Chapter 13 you may be making payments for three to five years. However, both Chapter 7 and Chapter 13 cases are effective at the instant you file them. All bankruptcies start with a court order called an automatic stay, which halts collection activity against you. This means creditors can't sue or garnish you, repossess your car, or foreclose on your home, as soon as you file your case. Bankruptcies are generally finalized with a discharge, or court order that says you don't have to pay the bills. This order comes about three months after you file a Chapter 7, or three to 5 years after filing a Chapter 13. During the 3 to 5 year payment period of a Chapter 13, you are protected from creditors by the automatic stay.
CAN I CHOOSE WHICH CREDITORS TO FILE BANKRUPTCY ON?
The law requires that if you file bankruptcy, you must list all your debts and obligations on the bankruptcy paperwork. However, a debtor may repay as many dischargeable debts as desired after filing under Chapter 7. By voluntarily repaying one creditor, a debtor does not become legally obligated to repay any other creditor. The only dischargeable debt that a debtor is legally obligated to repay after filing under Chapter 7 is one for which the debtor and the creditor have entered into what is called a reaffirmation agreement. Usually, it is not advisable to reaffirm general unsecured debts that would be discharged in bankruptcy. If you have any questions on whether or not a debt is dischargeable or whether or not you should reaffirm a debt, you should consult with a bankruptcy attorney as soon as possible.
HOW WILL MY CREDIT BE AFFECTED?
Many people believe that filing a Chapter 7 or Chapter 13 bankruptcy will ruin their credit for seven or ten years, or longer. Most credit reporting agencies will keep a Chapter 13 bankruptcy on your credit report for seven years. A Chapter 7 bankruptcy will usually stay on a credit report for ten years. One of two circumstances usually applies when a person considers filing a bankruptcy. Either they are in financial difficulty, or anticipate it, and are looking for a way to avoid it. In either of these two cases a bankruptcy may not hurt one's credit, but may in fact be the first step toward repairing a bad credit situation. Probably the most important situation for which you might need credit is buying a house. Many lenders may allow you to get a mortgage 2 years after bankruptcy if you are otherwise eligible. Many people buy a house less than 2 years after bankruptcy by assuming a mortgage or buying a house on contract. Nearly anyone can obtain a bank credit card, even if they have just filed bankruptcy, by depositing money in one of the banks that offer secured credit cards. You use the card just like any other credit card, but the bank uses the money you deposited to assure that you make the payments. People forget that someone lending money is primarily interested in knowing whether you can and will pay them back. If you get yourself out of debt by filing a bankruptcy you are better able to pay any new money you may borrow. Many creditors noting a Chapter 7 bankruptcy or Chapter 13 reorganization on a credit report are more interested in knowing what you've done since completing the bankruptcy to make yourself a good credit risk.
WHAT ARE PREFERENTIAL PAYMENTS?
The Bankruptcy Code provides that certain payments made just prior to filing a bankruptcy case may be preferential payments. Preferential payments are defined as payments made to a creditor that allow the creditor to receive substantially greater payment at the expense of other creditors in the case. A trustee in a bankruptcy case may avoid or seek return of payments made that prefer one creditor at the expense of other creditors. This often arises in cases where individuals pay off one debt while not making payments on their other debts. It also arises commonly when individuals pay back loans to friends or family members shortly before filing bankruptcy.
Generally speaking, payments of $600.00 or more to an unsecured creditor made within 90 days of a bankruptcy filing is a preferential payment. Also, repayment of debt to a family member within 12 months of a bankruptcy is a preferential payment.
Anyone who is considering filing bankruptcy should always seek the advice of competent bankruptcy counsel before making large payments to any of their creditors. It is possible that these payments may be recovered by the trustee and included in the bankruptcy estate as a preferential payment.
WHAT ARE THE MOST COMMON SIGNS THAT I MAY NEED TO CONSIDER BANKRUPTCY?
The most common sign that you may need a bankruptcy is that you cannot pay your debts as they come due. If you are borrowing on credit cards, using loans to make your monthly payments, or if you are considering a consolidation loan, you may need to consider filing some form of bankruptcy. Another common sign is if collection agencies are calling or writing you, or if you are being sued or garnished. If you are already being garnished, a bankruptcy can stop it and can sometimes even get back the money that was taken from you.
If you are behind on mortgage payments, or if your home is threatened with or in foreclosure, a Chapter 13 bankruptcy can prevent a foreclosure and get you a year or more to bring the payments current. Chapter 13 bankruptcy may be the only way to save your home.
If you are behind on car payments or if a creditor is threatening repossession, a Chapter 13 bankruptcy can stop that. If you owe taxes, and the IRS is threatening to garnish or seize your assets, a Chapter 13 bankruptcy may be the only effective way of dealing with the IRS. If your debts are overwhelming and you can see no way out, bankruptcy can give you a fresh start. If your income has declined so that you can't meet your obligations, bankruptcy can reduce your obligations, or possibly eliminate some of them, so you can support yourself in a reasonable and dignified manner.
WILL I LOSE MY HOUSE IF I FILE BANKRUPTCY?
No, if you file a bankruptcy proceeding and you are current on your house payments, and remain current, nothing in the bankruptcy law requires you to surrender your home. In fact, you might even file bankruptcy to avoid losing your home. If you are behind on your mortgage payments, it may be advisable to file a Chapter 13 proceeding to stop a foreclosure. If there isn't a foreclosure in place yet, but the mortgage company is threatening to foreclose, you can bring all mortgage arrearages current through the Chapter 13 plan. You can then begin making the regular ongoing mortgage payments while you are also making your monthly chapter 13 bankruptcy payments to the court trustee.
It is important to note however,
that if you have equity in your home and the bankruptcy trustee determines
that your home does not meet the requirements to be claimed as exempt(protected),
then your home could possibly be sold by the trustee. If it is sold, then
the equity would be paid to your creditors.
You are advised to consult with an experienced bankruptcy attorney to
determine whether the equity in your home will be protected in your bankruptcy
case.
IF I FILED BANKRUPTCY PREVIOUSLY, CAN I FILE AGAIN IF NECESSARY?
You can file a Chapter 7 bankruptcy once every six years. If it has been more than six years since you filed Chapter 7 bankruptcy, you are eligible to file for bankruptcy again. If it has been less than six years since you filed a Chapter 7 which resulted in a discharge, you are still eligible to file a Chapter 13 proceeding.
MOST COMMON MISTAKES PEOPLE MAKE WHEN TRYING TO AVOID BANKRUPTCY
A. Obtaining a Home Equity Loan
When people become over-burdened with too much credit card debt, one of the biggest mistakes they will make is to try to consolidate this debt with a home equity loan or 2nd mortgage against their home. This is typically done in an effort to avoid filing for bankruptcy. The interest rate on many of these loans is much higher than on the first mortgage.
In many cases the person that pursues this avenue only temporarily fixes their financial problems. Unfortunately many people that consolidate their credit card debts in the form of a home equity loan fail to change the bad financial habits that led them to obtaining the loan and ultimately run up their credit card debts once again.
In an effort to avoid filing for bankruptcy a second, third or even fourth mortgage has been obtained against the home and the credit cards continue to be used. At this point the person then seeks the advice of a bankruptcy attorney. It is then that the person discovers that in bankruptcy, the equity in a persons home is often protected from creditors. The only problem is that the person no longer has any equity left in their home because they have used it all up to pay credit cards. Worse yet, in many cases, the person can not afford to make the monthly payments on the multiple mortgages and now must let the home be foreclosed since they can no longer afford it. In such a case, if a person had consulted with a bankruptcy attorney before getting the home equity loan/2nd mortgage, then they might not have put themselves in a position that would later cause them to lose their home.
B. Borrowing Against a Retirement Plan
Another alternative that many people utilize when they are over-burdened with credit card debt is to borrow the money they have accumulated in their 401K or other retirement plan. A retirement plan is another type of property that is ordinarily protected in a bankruptcy proceeding. It is generally a mistake to borrow from a retirement plan to pay off debts. Although the repayment to the retirement includes some rate of interest, that rate is usually low. Had the money been left in the retirement plan it would have been able to grow at a rate of two, three or even four times the rate in which the loan was being repaid.
With the growing concern of the condition of our social security system, it is important now more than ever to sufficiently provide for ones own retirement. The lost earnings that a person would experience from borrowing from their retirement to pay credit card debt will never be recouped. For that reason alone, the retirement plan should never be used to pay off other debts.
ALTERNATIVES TO FILING BANKRUPTCY
An option that some people may wish to pursue before filing either a Chapter 7 or 13 bankruptcy is to attempt to pay their debts with the assistance of a non profit debt consolidation company or credit counseling agency. It is very important to be cautious about the credit counseling agency you work with. It is not advisable to use companies that are outside of Iowa if you live in this state. It is always a good idea to check out the company first, before entrusting them with your money.
Two very reputable agencies that are located in Iowa are Consumer Credit of Des Moines and Metropolitan Debt Solutions. These are nonprofit agencies and they will negotiate with your credit card companies to lower the interest rates and to try and set up a feasible payment plan. To find out more information about what they have to offer, you can either call them or click on the link to their website.
Consumer Credit of Des Moines
(515) 287-6428
www.consumercredit-dm.com
Metropolitan Debt Solutions
(515) 277-3251
(800) 510-3251
www.debtmanagers.com
For a free consultation with an Iowa bankruptcy lawyer to discuss business and consumer bankruptcy, call me for an appointment or email me from this page.
701 E. Court Ave. Suite A · Des Moines, IA · 515-255-1855 · info@iowa-bankruptcylaw.com