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New bankruptcy laws are enacted and will take effect October 17, 2005. |
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Over 11,000 consumers and businesses filed for bankruptcy in 2002. |
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Since 2000, Chapter 7 bankruptcies in the Northern District of Iowa have been on the rise.
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Bankruptcy Questions and Answers
The Frequently Asked Questions piece that follows is reproduced, with permission, from the original written
by Brian W. Peters of the Kintzinger Law Firm, Dubuque, Iowa.
Copyright (c) 1993-2005 by Brian W. Peters, All rights reserved.
This document gives general answers to questions that are frequently asked by our clients.
It is intended for clients of this office, and is not intended as a substitute for our advice in individual cases.
You also should understand that bankruptcy law changes from time to time;
we believe the information below was accurate when written, but we cannot guarantee that it will remain correct over time.
We do hope that it will be a useful background, and a way to think about questions to ask us directly.
Q. What is bankruptcy?
A. Bankruptcy is a filing in federal court for protection from collection
efforts by creditors. It can be of a number of types (called chapters),
and the relief that the court can grant varies by the chapter under which
relief is requested.
--Chapter 7 -- also called a "liquidation" or "straight" bankruptcy
is the most common filing for individuals. A Trustee is appointed to sell
any property that is not exempt, and the court enters an order in about
90 days permanently barring most creditors from any further collection
efforts.
--Chapter 13 -- also called a "wage-earner" or "payment-plan" bankruptcy
is an alternative filing for individual debtors. Generally the debtor(s)
keep all or most of their property and propose a payment plan running over
3 to 5 years. A Trustee is appointed to receive the payments and distribute
the money to creditors according to the plan. Depending on the types of
debt involved, the plan may pay less than the full amount owed to some
or all of the creditors. The court enters an order barring further collection
by nearly all types of creditors after all payments are made.
--Chapter 12 -- this form of bankruptcy is available only for farmers.
It resembles a chapter 13 case, except that the debt limits are higher
and some additional provisions specific to agriculture are available.
--Chapter 11 -- also called a "business reorganization" bankruptcy
is available to, but not frequently used by, individual debtors. The debtor
continues to operate (generally a business) and usually retains all property
while negotiating a plan for full or part payment of debts to creditors.
Generally, a Trustee is not appointed. This chapter is rarely used by non-business
debtors because the cost of negotiations, mailings and hearings to have
a plan approved is substantially more than in any other chapter.
Q. How is a bankruptcy started?
A. In all cases a bankruptcy is started by filing a petition and schedules,
which list the assets and debts of the debtor and answer questions about
recent transactions with creditors.
Q. Can I file a bankruptcy without a lawyer?
A. Yes. As is true of almost any court case, individuals can represent
themselves. The required forms for filing a bankruptcy are available from
a number of sources, (for example the Northern
District of Iowa Forms Page)
and materials about bankruptcy are available at many libraries (and at
numerous places on the internet, for example the ABI Consumer Education Center).
Much like taking apart your new car, however, you should not file your
own bankruptcy unless you are willing to spend the time to fully understand
the process before you start. Merely reading this question and answer sheet
(for example) would not prepare you to file your own case.
Q. If I file a chapter 7 petition, will the court take everything
I own to pay creditors?
A. No. You will be allowed to keep all exempt property that you have.
The exact items and value of property that you can keep varies from state
to state. You should also be aware that a secured creditor may be able
to take back even some exempt property after the bankruptcy if you mortgaged
or pledged the property to the creditor. Cars and houses, for example,
can be taken by the lender after the bankruptcy in the same way as before
if you stop making payments.
Q. Can I agree with a creditor to continue making payments after
a chapter 7 bankruptcy so I can keep the property they have a lien on?
A. Yes. An agreement to continue making payments to a creditor (called
a reaffirmation agreement) can be made after the chapter 7 petition is
filed. The agreement is much like buying the property again; if you stop
making payments the lender can repossess the property, and can ask for
a court judgment if the property returned doesn't pay the loan.
Q. Will filing a chapter 7 bankruptcy automatically get rid of all
my debt?
A. No. The court order permanently barring collection activities for
creditors in your bankruptcy (called a "discharge" or "discharge in bankruptcy")
does not affect some kinds of debt. The most important of these are 1)
recent taxes, 2) criminal restitution and fines (including traffic tickets),
3) student loans, and 4) child support or alimony. In addition, the
court may decide not to allow discharge of debts or judgments resulting
from fraud or malice. The discharge can also be denied if you violate the
rules of the bankruptcy court by ignoring orders of the court, skipping
hearings, or making false statements on the petition and schedules.
Q. If I file a bankruptcy, will I ever be able to get credit again?
A. There is no simple answer to this question, because each lender makes
its own decision about extending credit, and the standards for granting
credit vary widely. Your "credit rating" with a lender is mostly determined
by two things, 1) the amount and stability of your income, and 2) your
history of repaying loans. Bankruptcy, of course, is one factor that a
lender will consider in looking at your repayment history. Some lenders
claim that they will never lend to a person who has filed a bankruptcy,
or at least will not lend to anyone who has filed within a year or two
of a loan application. Other lenders look on the filing as a business opportunity,
since other debts have been discharged. Most lenders will fall somewhere
in between these extremes.
Bankruptcy is not an "easy way out," and you should not file if there
are other solutions to your debt problems. It is not, however, necessarily
more damaging to your "credit rating" than a lengthy list of debts that
you cannot possibly repay.
Q. Will I need to appear in court?
A. Yes. In every case the debtor (or both debtors, for a joint petition)
are required to appear to answer questions at a short hearing, called a
"341 meeting" or a "meeting of creditors." The meeting date is generally
20 to 40 days after the petition is filed, and you and all creditors will
receive notice of the date and time. Most of the questions asked will be
to check about whether there is non-exempt property available that could
be sold to pay creditors. Generally, the appointed trustee conducts the
meeting, and more often than not, creditors do not attend 341 meetings
in consumer bankruptcies. Usually, this is the only court appearance you
need to make.
Q. How soon after I file do creditors have to stop collecting from
me?
A. The bankruptcy code prohibits collection efforts by listed creditors
as soon as the petition is filed. Until the creditors
actually receive a notice from the Clerk of the Bankruptcy Court, you will
need to tell them that you have filed the bankruptcy. The order prohibiting
collections (called the "automatic stay") can be modified by a
Bankruptcy Judge after a hearing, but otherwise continues until a discharge
is granted or denied. If no objections are filed, a discharge is generally
granted about 72 days after the date of the 341 meeting.
Q. What do you do as an attorney in a bankruptcy?
A. No two cases are exactly the same, and the exact things we do vary
with your situation. In general, we 1) talk with you about the process
of bankruptcy and how it applies to the particular debts and assets that
you have, 2) talk about what alternatives to bankruptcy might be available
to you, 3) supply you with a worksheet for the information we need to file
a petition and schedules, 4) prepare the petition, schedules, and any required
attachments, 5) file the petition and schedules with the Clerk of the Bankruptcy
Court, 6) answer inquiries from you, from creditors, and from the Trustee
concerning the filing, and 7) attend the first meeting of creditors with
you. We are generally willing to talk with you about the bankruptcy process
by telephone or in person without charge. We do require that the entire
filing fee and fee for our services be paid before we will file a chapter
7 petition.
Q. What bankruptcy information is available on the internet?
A. The single best bankruptcy site on the internet is the American Bankruptcy
Institute's ABI World. The Administrative Office of the U.S. Courts has a series of short videos about the basics of bankruptcy. Most bankruptcy courts now have websites, usually with home
page addresses constructed in the format "www.???b.uscourts.gov"
where "???" is replaced by the two letter postal abbreviation for the state
and the first letter of the district name. For example, the home page for
the Iowa (IA) Northern District Bankruptcy Court is "www.ianb.uscourts.gov".
A listing of the federal court websites is at the U.S. Courts Court Links page. Another useful source is the Credit InfoCenter; their bankruptcy
information section is generally well written, although some of their information about exemptions is not accurate for midwestern states. They also have a great deal of information about credit generally at their home page. Be cautious about the ads; they are not part of the regulated content of the site.
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