Bankruptcy: Frequently Asked Questions
Will Bankruptcy help me? Should I file?
If you have never filed a bankruptcy petition before, you may feel apprehensive about the process, and this is normal. The decision to file bankruptcy should not be taken lightly and should only be made after a thorough evaluation by an attorney who is a specialist in consumer bankruptcy filings. I will examine your current financial circumstances and help you make an informed decision. Most of the people who come into my office and sit down with me for a free consultation will benefit from a bankruptcy filing, either Chapter 7 or Chapter 13. If I determine that bankruptcy will not help you or that you otherwise do not qualify, I will inform you of other alternatives to bankruptcy.
Which Bankruptcy Chapter should I file?
For consumer debtors-either individuals or married couples, there are basically two types of bankruptcy cases to choose from. Chapter 7 or Chapter 13. The basic difference is that a Chapter 7 Bankruptcy wipes out your debt, whereas a Chapter 13 is a repayment plan. That is the basic difference, but there is much more to each one, and making an informed decision of which type is the proper one for your specific needs should be made after a meeting with a bankruptcy attorney like myself. When I explain the basic difference to a client at the initial consultation, the Chapter 7, which does not involve a repayment plan is, not surprisingly, usually their first choice as it sounds a little more appealing than repaying your creditors all of your disposable income through a court supervised repayment plan in a Chapter 13 bankruptcy. Chapter 7 is generally reserved for lower income people who, after paying their regular monthly expenses, have no money left over to pay their creditors and therefore cannot propose a Chapter 13 repayment plan. As of 2005 when the Federal bankruptcy laws underwent their last major changes, there is a means test which basically tells you if you should be in a 13 or if you qualify for a 7. The means test is complex and and the analysis should be performed by a bankruptcy attorney. I will perform a means test at your free initial bankruptcy consultation. A Chapter 13, despite being a repayment plan, can offer tremendous financial relief and provide an orderly timeline in which you are classifying your creditors according to their priority and paying your general unsecured creditors only a portion of their actual claim in most cases. Chapter 13 requires that you commit all of your disposable income, or that income left over at the end of the month, after you pay all of your regular monthly expenses. In most cases that I file on behalf of my Michigan clients, this results in a small percentage of the unsecured debt; credit cards, medical bills, collection accounts, being paid through the plan, with the remainder ultimately discharged by order of the bankruptcy court.
Will my personal property be taken from me?
No, not in the vast majority of the cases that I file on behalf of my metro Detroit area clients. When I sit down with you to determine whether a bankruptcy filing is in your best interest, and if so, which chapter, I tend to analyze your personal situation from the standpoint of a chapter 7 trustee. In a chapter 13 reorganization, you are proposing a repayment plan and no assets can be taken to be sold to pay creditors. A chapter 7, on the other hand, is a liquidation bankruptcy, which means that a trustee is appointed to take and sell or reduce to cash, any non-exempt or unprotected property that you own for the benefit of your creditors. I will thoroughly go over your personal assets with you, list them in your bankruptcy petition, and use either the federal or State of Michigan exemptions to protect those assets. Most of my clients have what is called a no asset case, meaning that nothing will be taken from them by the chapter 7 trustee as it is protected by the applicable exemptions. Properly using bankruptcy exemptions is extremely difficult and should be done only by an attorney who specializes in filing bankruptcy cases in Michigan. In Detroit, where my main office is located, there has recently been a high number of people who are attempting to file bankruptcy without an attorney and the trustees are taking away assets and selling them to pay the creditors in the case. Not surprising as this is their job. These cases are not properly prepared and the assets are not properly listed or exempted resulting in their loss to the hands of the trustee. The sad reality is that in an attempt to save a few hundred dollars in attorney fees, they ended up losing thousands in assets that could otherwise likely have been protected had they sought out the counsel of a qualified bankruptcy lawyer. At my office you will sit down with an attorney who will go over each and every kind of property you own to make sure that it can be protected. If we determine that a particular asset does have what we call un-exempt equity or value over and above what you can protect by law, I will advise you as to the probable resolution with a trustee. I have never had a client, in my over 20 years of bankruptcy experience, who lost an asset to a trustee that he or she wished to retain. It is imperative that you tell me about all of your assets at your initial consultation so that I may properly determine if it can be retained. The federal bankruptcy exemptions, which are used in well over ninety percent of the cases I file, can protect just about any kind of personal property including cash on hand, checking and savings accounts, household goods and furniture, clothing, jewelry, sporting goods, guns, 401k other individual retirement accounts, automobiles etc. Thanks to a wildcard exemption, we can protect any type of property up to certain values. If you are worrying as to whether or not a particular piece of property you have can be retained in a bankruptcy proceeding, please contact me.
Can I keep my house if I file bankruptcy?
In most cases yes, but this depends on a number of factors. Most of my clients who own a home in the metro Detroit area have a mortgage and in many of those cases, the mortgage balance exceeds the present value of the property resulting in no equity or value to the trustee. A bankruptcy trustee is generally only interested in determining the value of the equity in real property that you own and then approximating the costs of sale and your claimed exemptions. As stated above, I will make a careful determination of the probable equity in your property and, if there is any, apply the bankruptcy exemptions available to you to protect that property. If the property is owned free and clear of any mortgages or other liens , you may need to have the property appraised to help determine the present fair market value. In cases in which you have fallen behind on your mortgage payments or property taxes and are facing foreclosure, a chapter 13 bankruptcy is often your best solution to keeping the property as it stops a pending foreclosure sale and gives you a three year time period to catch up on your mortgage arrears. It is important to note that after you file a chapter 7 bankruptcy that you should continue to make payments on your mortgage, provided that you wish to keep the property. While the note or debt on the property will be wiped out, the mortgage will survive the bankruptcy and therefore you should continue to make payments unless you wish to surrender the property to the creditor. If all this sounds a bit complicated and confusing, don’t be too concerned. I am here to help. Consumer bankruptcy law is complex and is one of the most specialized areas of law. A careful analysis by an attorney certified in consumer bankruptcy law can help you navigate through the law.
Can I keep my car if I file bankruptcy?
Yes, in most cases. Similar to the above, most of my clients who have vehicles owe the car finance company more than the vehicle is worth resulting in no equity. If you are leasing a vehicle, you don’t own it so it is not your personal property and is not part of your bankruptcy estate. In cases in which a vehicle is owned free and clear of liens, the value is typically less than $10,000, which typically can be protected using a combination of exemptions available. In the rare case in which you have substantial equity in a vehicle or an automobile collection, a careful analysis must be undertaken to weigh the pros and cons and likely outcome of a bankruptcy. Again, it is important to note that you should continue to make payments on your vehicle after a Chapter 7 filing if you wish to keep the vehicle. If you are surrendering or giving the vehicle back to the creditor, you can stop making payments. The creditor will either repossess it or arrange for a mutually convenient time for you to drop off the vehicle. The vehicle will be sold at a dealer only auction however you will not be liable for any deficiency balance owed on the vehicle as this will be discharged upon the successful completion of your bankruptcy. In some cases, if you are financing a car, the car finance company will send my office a reaffirmation agreement. A reaffirmation agreement is a document that is signed by you, the bankruptcy debtor, myself as your attorney, and an attorney for the car finance company. There are various considerations to weigh when making the decision to reaffirm your car and I will tell you about the pros and cons. In cases in which you are leasing a car, a few car finance companies will want you to sign what is called a lease assumption agreement.
What documentation do I need to bring to my Bankruptcy consultation?
Bankruptcy involves quite a bit of paperwork, both with the petition which starts the case through the supporting documentation that must be provided to the trustee shortly after the case is filed. In order to properly evaluate your individual financial state of affairs, I will want to see your most recent pay-stubs if you are working as well as the last couple of years federal income tax returns. In order to properly help you claim exemptions, I will want to see car titles, deeds to real property such as your house, your most recent IRA or 401k statement, and recent bank statements for any checking or savings accounts you may have. When I first started practicing bankruptcy here in Detroit, over 20 years ago, the trustees hardly requested much documentation, and if they did, my clients could just bring original documents to the hearing where the trustee would review them on the spot. Times have changed and now, virtually all of the trustees in southeast Michigan require the relevant bankruptcy documents needed to be individually scanned and properly uploaded to specific categories with each trustee, prior to your bankruptcy hearing. I had to hire a legal assistant, just to perform this time consuming task. If you are coming to my Detroit office or Royal Oak bankruptcy office to see me, I ask that you download my starter packet, spend a few minutes filling it out as best you can, gather your pay stubs and tax returns and come in. Be sure to gather together your bills and any collection letters you may have from creditors. I pull your credit report after you retain me and cross check it with the list of creditors that you have provided.
How much does it cost to file for bankruptcy in Michigan?
At this writing (2015), the court filing fees for Chapter 7 are $335. The court filing fees for Chapter 13 are $310. My attorney fee ranges from $500-$800 for a typical Chapter 7 bankruptcy case. The law requires that the full attorney fee must be paid prior to the case being filed, otherwise it is subject to the Bankruptcy Discharge Order just like any other debts you owe. For a Chapter 13, my office, similar to most other consumer bankruptcy law offices in Michigan, normally charge a flat fee of $3500 of which we typically require $0 ZERO down in most cases, as we are paid through the trustee as an administrative expense. In addition to the court filing fee above, clients must complete a pre-filing credit counseling briefing which costs about $35 and before your judge can grant you a discharge, a post-filing debtor educational course must be completed. This course typically costs $25. The pre-filing and post-filing briefing and educational requirements sound difficult to complete, but really are rather simple. My office has handled thousands of cases since these requirements became part of the new law in 2005 and have it down to a science. When you retain me to help you file a bankruptcy, you can complete these requirements at home or in my office, the option is yours.
Will I ever be able to get credit again?
Yes. A bankruptcy discharge will be a fresh start for you financially. In most of my cases, my client’s credit score goes up simply upon the discharge being granted by the Judge. The credit card and banking industry would like you to believe that if you file bankruptcy, you will never get credit again. They have perpetuated this myth in mainstream society, because they don’t want people filing bankruptcy. The truth is that a discharge in bankruptcy will wipe the slate clean and likely increase your FICO score. Another benefit to filing is that the new bankruptcy law requires that before a discharge is granted, you complete a debtor educational course designed to teach you a bit about personal finance. This course can be completed either at home or in my office and can be done either on the phone or online, in less than 2 hours. Some of the course will be a review of basic personal finance, however many of my clients tell me that they did pick up some useful tips. The United States Congress made this debtor educational course mandatory, hoping that people filing bankruptcy would learn from the experience so as to maximize their fresh start. Look at your fresh start as just that, a new beginning to start over financially. The best way to maximize this fresh start is to pay any bills you get after bankruptcy on time. This simple act will go a long way to boosting your credit score after bankruptcy. Because most of my clients file bankruptcy due to overwhelming credit card debt, they usually tell me after their discharge is granted, that they never want to see another credit card again due to the enormous grief it caused them once they could not afford to pay even their minimum monthly payments. A small percentage of my clients fill-out every credit card offer they receive after bankruptcy and, unfortunately, get back into financial trouble within a year or two after filing. If you wish to reestablish your credit to be able to qualify for a mortgage to purchase a house or to get a reasonable interest rate to purchase or lease a car, moderate and reasonable use of credit cards after bankruptcy will help you get there. Normally after a client files bankruptcy with my office, they receive pre-approved credit card offers from large banks such as Capital One or Chase within 6 months of their discharge. I advise my clients to go ahead and accept one or two of these offers and to use the cards for small purchases and pay the balance in full every month. If possible, set up auto pay, where the credit card is automatically paid on time and in-full through your checking account. Avoid maxing out the credit limit and avoid the temptation of obtaining more than a couple cards. Do not fall into the cycle of paying only the monthly minimums, try to pay the balance in full every month or within two to three months of a larger purchase. If you do this, you will soon increase your credit score sufficiently to be able to lease a car with an affordable payment or secure car financing with a reasonable interest rate and monthly payment. Within a couple years, you should be able to obtain a conventional mortgage to purchase a house. Mortgage lenders will want to see stable employment and some money down, but a favorable interest rate is not out of the question.
If I am married, can I file bankruptcy by myself or must I file together with my spouse?
You can file an individual bankruptcy case. There is no requirement to file a joint bankruptcy case with your spouse, but it is an option. Most cases I file are individual cases as most of my clients are single. I would say that most of my married clients file a joint bankruptcy petition, but quite a few, around 40%, file alone, without their spouse.
Do I have to list all of my creditors on my bankruptcy petition?
Yes, the law requires that you list all of your debts when you file a bankruptcy, either Chapter 7 or 13. This includes credit card debt, medical bills, past-due utility bills, etc. It also includes any debt that we know cannot typically be wiped out such as child support, alimony, student loans and recent income tax debts owed to the IRS or State of Michigan. The bankruptcy court and your trustee will want to get a complete picture of your entire financial picture which requires an accurate listing of all your creditors. This even includes friends and family members who have loaned you money. Just because you list a debt on your bankruptcy petition does not mean that you cannot pay that person or company back after filing or even after you are granted a discharge. The discharge injunction means that they cannot try to collect from you, but you are free to voluntarily pay whomever you wish.
Do I have to list all of my assets on my bankruptcy petition?
Yes, the bankruptcy laws require you to list all of your real and personal property on the bankruptcy petition and supporting schedules. Disclosing or listing assets in bankruptcy is fundamental to the bankruptcy process and is just as important as listing all of you creditors. Proper disclosure even requires you to list intangible items that you may have an interest in such as a potential interest in a personal injury lawsuit or other legal claim. The good news is that most of my clients can protect or exempt their real and personal property from the trustee whose job it is to investigate the assets you have, and sell any non-exempt property to pay your creditors. Properly listing and exempting your assets is a very difficult task. I see attorneys at court who do not regularly practice bankruptcy who make serious mistakes while preparing their client’s petition and their client ends up losing an asset. If you are worried if a certain asset that you have may be in jeopardy, by all means, tell your attorney about it, and don’t try to conceal assets in bankruptcy, because it can most likely be protected.
What happens to the debt and who deals with the creditors and collection agents after the bankruptcy is filed?
The creditors and collection agents who were hounding you day and night will immediately stop all of their collection actions against you after filing. The automatic stay goes into effect as soon as I file the case which prohibits creditors from taking any steps to try and collect their debt from you. Furthermore, creditors know that you are going to shortly receive a bankruptcy discharge so they don’t want to waste their time anymore. Since they are prohibited from contacting you after the bankruptcy case is filed, they will be dealing with me, your bankruptcy attorney and my legal assistants, paralegals and other office staff at my Michigan bankruptcy law offices. Your bankruptcy trustee will may also communicate with your creditors after you file, but typically they simply cease their collection activity and close their file. If a creditor happens to contact you after the filing of your bankruptcy petition, it is usually because they don’t know that your filed. Provide them with my name and phone number so that I can provide them with your bankruptcy filing information.
Can I still file bankruptcy if I’m current on all my debts?
Yes. There is no requirement that your accounts have to be delinquent or that you have to be months behind on your bills to file bankruptcy, though most of my clients are behind as they were hoping that things might change and that they might be able to pay their creditors. Some of my clients, before seeing me, have been juggling various credit cards and for months have been using balance transfer offers or taking cash advances from one credit card to pay the other. This rarely works for an extended period of time as the credit card companies see this activity on a credit report and sense that they are experiencing financial difficulties. Because a credit card company is permitted to raise their interest rates at anytime, for any reason, they will often increase your interest rate to 24.99% to 29.99% making a bad situation only worse. Most of my clients are forced into bankruptcy by their creditors, they don’t really want to file, they would much rather pay their creditors. Unfortunately, it is usually aggressive creditor action by one or two creditors that ultimately lead to the bankruptcy. Such action includes wage garnishment or bank account levy, seizure of assets or income tax refunds on which my clients depend for much needed household expenses. It basically comes down to this. If you are having trouble paying your debt as it comes due, you will likely benefit from bankruptcy filing. Whether you should be in a Chapter 7 bankruptcy or a Chapter 13 depends on whether your have sufficient disposable income left over at the end of the month after paying your reasonably necessary expenses. If you are unsure or if you have never analyzed your budget, feel free to come to my office for a free evaluation.
Where are your offices located?
I have two bankruptcy offices. One at 30448 Woodward Avenue in Royal Oak and the other in Detroit just one-block from the bankruptcy court that serves all of Southeastern Michigan. My main office is located indowntown Detroit, at the corner of Griswold and Fort street in the historic Penobscot Building, Suite 3156. (Click here.)
My Michigan driver’s license has been suspended due to a judgment or driver responsibility fees. If I file bankruptcy can I reinstate my license?
Yes. This is another common reason for filing bankruptcy. The Michigan Secretary of State (SOS) can suspend your driver’s license if you have a judgment creditor (known as financial liability judgment) or a local district court may notify the Secretary of State of your failure to comply with a Court ordered judgment (FCJ or Failure to Comply with Judgment). The SOS will notify you via letter that your license is suspended until taken care of which usually means it must be paid. Fortunately, a bankruptcy filing and eventual discharge order will satisfy the department of SOS and will allow you to reinstate your Michigan driver’s license after paying small reinstatement fees. I have had many clients over the years who were involved in accidents in which significant property damage occurred or personal injuries resulted to others. In many of these accidents, my clients had no insurance coverage due to the fact that they could not afford the insurance premiums. Later on, they are sued by an insurance company or Michigan Assigned Claims facility who paid tens or hundreds of thousands of dollars to the injured party involved in the accident. Bankruptcy law states that so long as the debtor was not intoxicated with alcohol or drugs when the accident causing personal injuries occurred, the debt stemming from the accident is dischargeable in bankruptcy. In Michigan, since 2003, drivers who have certain traffic offenses or accumulate a certain number of points against their driver’s license may be subject to Michigan’s Driver responsibility fees. Fortunately, these are administrative in nature and are not criminal fines or penalties which are not dischargeable. If you have a large amount of driver responsibility fees and your license has been suspended as a result, the filing of a bankruptcy will wipe it out. If you have had your license suspended due to driver responsibility fees or being involved in an accident with no insurance coverage, contact a bankruptcy attorney, so that I can help you get your license restored.
I want to surrender my car to the car finance company. How does that work?
When you file a personal bankruptcy case, and you are financing or leasing a vehicle, motorcycle or other vehicle, you have a few options. One option is to surrender or give back the vehicle to the secured creditor. Part of the bankruptcy paperwork you file with the clerk of the court includes a Statement of Intentions page. On that page, you state what you wish to do with secured property you own like a house, car or boat. This document is not binding upon you, but is simply telling parties in interest like your trustee and your creditors, what you intend to do with the property which generally is either retain, redeem, or surrender. When you surrender a car during your bankruptcy, the car finance company cannot simply come repossess it from you unless they seek relief from the automatic stay or the stay expires due to discharge. If your vehicle is a newer model vehicle and in fair condition, the finance company will usually make some arrangements with you, via your bankruptcy attorney, to either drop it off or schedule a time in which a tow truck can meet you at your residence. This is the preferred way to surrender a vehicle since it allows you to remove your personal items, documents and license plate from the vehicle. Some of my clients chose to hold on to the vehicle as long as possible and simply wait for the repo man to come get it. After the vehicle is picked up, it will typically be taken to a private dealer auction and prepped for sale. State law in Michigan requires that you be notified of the disposition of the property including a calculation of the sale proceeds and the costs associated with the repossession and auction. In most cases, your obligation on the remaining contract is higher than the proceeds obtained at auction. The good news is that your personal liability for this difference or vehicle deficiency balance will be wiped out when you are granted a bankruptcy discharge.
Can I keep my 401k plan, IRA or pension plan?
Yes, retirements funds that are in ERISA qualified tax deferred plans are either exempt or protected by various bankruptcy exemption laws or may be entirely excluded from your bankruptcy estate. The general rule is that if you have put the funds into the account pre-tax, your employer is matching the amount you contribute or contributing monies into the account for you, and you cannot access the money in the account until a certain age or upon retirement, you can likely protect it, but this evaluation should only be undertaken by a qualified bankruptcy lawyer.
What happens to my utility bills like DTE Energy if I owe a past-due amount?
Many of my clients have fallen behind on their utility bills before deciding to file bankruptcy and some have either received shut-off notices or have already had their services disconnected. Consumer bankruptcy laws require that a utility company either stop a pending shut-off or reconnect service upon notice of a bankruptcy filing. In the area I practice bankruptcy, metro Detroit, the primary utility company for electric and gas services is DTE Energy, with Consumers Energy handling some of the natural gas distribution in southeast Michigan. Fortunately, both of these utility companies have bankruptcy legal departments and understand how bankruptcy works. If you are behind on your utility services, we make sure that the utility company is properly listed in your bankruptcy petition and after we file the case, we notify the utility company that you have filed and they will either turn back on the service or stop any shut-off order. The utility company is required by law to start your account from a $0 balance on the date of filing. Sometimes, if your account has been very delinquent, the utility company will ask for a deposit on the account. The deposit will be held for one year provided all post-petition (after filing bankruptcy) invoices are paid timely. It is important to emphasize that the filing of a bankruptcy and a subsequent discharge being granted is a fresh financial start and that your utility bills should be paid timely thereafter as DTE Energy is now reporting to the major credit reporting agencies.
Life After Bankruptcy: FAQs
To find out what people ask after they filed bankruptcy, head over here.