What is Bankruptcy?
Bankruptcy is a legal proceeding in which an individual or couple can receive a fresh financial start. Bankruptcy is governed by federal law. Cases are filed in federal bankruptcy court. There is a federal bankruptcy court in each judicial district in the country. The bankruptcy court for the Western District of Oklahoma is located in Oklahoma City. If you live in any of these counties, you live in the Western District. Your bankruptcy case will be controlled by the bankruptcy judge. Debtors normally have limited to know involvement with the judge. Your case will be administered by the appointed trustee.
Benefits of Bankruptcy?
Bankruptcy may make it possible for you to:
- Immediately stop all of your creditors from seeking to collect debts from you during the pendency of your case including garnishments, harassing phone calls and letters and all similar actions to collect a debt.
- Prevent foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
- Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
Eliminate the legal obligation to pay some or most of your debts. This is called a “discharge” and is intended to give you a fresh financial start.
What Bankruptcy Doesn’t Do?
Bankruptcy is not a magic wand that wipes out all of your financial obligations. In bankruptcy, it is usually not possible to:
- Eliminate certain rights of “secured” creditors. A “secured” creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. However, you can force secured creditors to take arrearage payments over time in the Chapter 13 bankruptcy process. Likewise, bankruptcy can eliminate your obligation to pay any additional money if your property is taken. However, if you keep the property, you generally must continue to pay the debt
- Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, some student loans, court restitution orders, criminal fines, and some taxes.
- Protect cosigners on your debts. When a relative or friend has co-signed a loan, and you discharge the debt in bankruptcy, the cosigner will likely still have to repay all or part of the loan, whether you keep the property or not.
- Discharge debts that arise after bankruptcy has been filed.
What Chapter of Bankruptcy Should I Consider?
There are four types of bankruptcy cases provided under the law. However, most individuals or joint filers file under either Chapter 7 or Chapter 13.
- Chapter 7 is known as “liquidation”. It requires a debtor to give up property which exceeds certain limits called “exemptions”, so the property can be sold to pay creditors.
- Chapter 11, known as “reorganization”, is used by businesses and a few individual debtors.
- Chapter 12 is reserved for family farmers.
- Chapter 13 is called “adjustment of debts”. It requires a debtor to file a plan to pay debts (or parts of debts) from current income.
Chapter 7 Bankruptcy
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In many cases, all of your property will be exempt. However, property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to apply to the debt. In order to qualify for a Chapter 7, a consumer debtor must pass the means test. Individual debtors whose debts are primarily business debts do not have to pass the means test to qualify for Chapter 7.
Chapter 13 bankruptcy (Adjustment of Debts)
In a chapter 13 case you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep property–especially your home and car–which may otherwise be lost, if you make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.
You should consider a Chapter 13 if:
- Your income is too high to qualify for Chapter 7.
- You have non-exempt property that you wish to keep.
- You are behind on your mortgage or car loan and wish to keep the property.
In order to qualify for Chapter 13, you must be an individual (including a married couple) with regular income.
What Does Bankruptcy Cost with your firm?
In addition to the attorney fee, which will be based on your personal circumstances, you will also need to pay the court filing fee and take 2 online courses (the combined cost of these courses is approximately $25.00). The court filing fee for Chapter 7 is currently $335.00 and the court filing fee for Chapter 13 is currently $310.00. The court may allow you to pay this filing fee in installments if you cannot pay all at once.
In Oklahoma Will I Lose My Property?
In a chapter 7 case, you can keep all property which is “exempt” from the claims of creditors. Oklahoma law provides for many exemptions which are available. In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement. You also only need to look at your actual equity in any property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it. While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind on payments. The determination of which states exemptions apply is based on the length of time you have lived in Oklahoma. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.
What Will Happen to My Home and Car If I File Bankruptcy in Oklahoma?
In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13. However, some of your creditors may have a “security interest” in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make erase these security interests. You must generally continue to pay the debt or your creditor may be able to take and sell the home or the property, during or after the bankruptcy case. There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full (“reaffirmation” of the debt) or you can pay the creditor the amount that the property you want to keep is worth (“redemption”). In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.
Will Bankruptcy Discharge All My Debts?
Bankruptcy does not normally discharge:
- Money owed for child support or alimony, fines, and some taxes
- Debts not listed on your bankruptcy petition
- Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan
- Debts resulting from “willful and malicious” harm
- Student loans owed to a school or government body, except if:– the court decides that payment would be an undue hardship
- Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).
Do I Go to Court?
In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors”. Most of the time, this meeting is short with questions by your attorney and your case trustee, primarily about your petition, schedules and financial situation. Your creditors also have the right to attend this meeting and ask you questions, normally about your intention to pay on a secured debt. If your circumstances suggest that a creditor may appear for other reasons, you and your attorney should discuss the issue before the meeting.
There are a few instances where you may need to actually appear before the bankruptcy judge. For instance, if you wish to reaffirm a debt but don’t have sufficient income, or if you dispute a debt, a hearing with the court may be required. If so, your attorney will notify you.
Will Bankruptcy Affect My Credit?
A discharge may stay on your credit report for up to 10 years. However, if you are behind on your bills, your credit may already be bad. In addition, since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.
Can I Obtain Credit After Discharge?
Most likely. You will have just discharged debt and you will be unable to do so again in a Chapter 7 for 8 years from the date your case was filed.
Can Bankruptcy Help Get My Oklahoma Driver’s License Back?
If you lost your license solely because you couldn’t pay court-ordered damages sustained in an accident (financial responsibility), bankruptcy will allow you the chance to get your license back. However, Chapter 7 does not normally discharge fines owed to a governmental unit.
I’m Married, Can I File by Myself?
Yes, but your spouse will still be liable for any joint debts. If you file together you will likely be able to double your exemptions as most exemptions apply “per debtor”. You will likely need to report your non-filing spouses income (and expenses) on the means test and Schedule I, which my impact your ability to file under Chapter 7.
Can filing bankruptcy stop bill collectors from calling?
Yes. The automatic stay prevents bill collectors from taking any action to collect debts. This stay goes into effect when your case is filed. At that time, the court will mail notice to all listed creditors. In the interim, if you have not already done so, tell any creditors who contact you that you have hired an attorney and have filed bankruptcy. If they continue to contact you, they are violating the automatic stay and may be liable to you.
If I am getting a divorce, how will my ex-spouse filing bankruptcy affect our settlement or decree?
Alimony, maintenance, and/or support are protected from discharge. Divorce decrees and separation agreements are covered by 11 U.S.C. §523(a)(15). This section states that these debts are not dischargeable unless:
- The debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or
- Discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor.
If I recently moved, where do I file my case?
If you haven’t lived in your current state for 91 days you must wait until you have lived there for 91 days and then file in your current state. If you lived in your current state for more than 91 days but less than two years, you will file in your current state but use the exemptions from where you lived for majority of the 180 day period immediately previous to the 2 year period before you filed. If you bought your home within the last 40 months and/or haven’t lived in your current state for the last 2 years then your homestead exemption may be limited so be sure to discuss this with your attorney.
Contact a bankruptcy attorney today to discuss your circumstances.