Bankruptcy: A Fresh Start for People with Financial Problems


Bankruptcy is designed to provide a fresh start from excessive debt. Sometimes people make poor decisions which result in financial problems. Other times, people get into financial difficulty through no fault of their own. A serious illness in the family, a layoff of a wage earner, or other unanticipated events can quickly move a family into financial trouble.

The most common type of bankruptcy is called a Chapter 7 bankruptcy. A Chapter 7 bankruptcy cancels virtually all debts, including medical bills, most credit card bills and personal loans. Debts secured by collateral can be reaffirmed-by making payments and keeping the collateral-or disaffirmed-allowing the secured creditor to reclaim the security. An example of a secured debt is an auto loan or a home mortgage. Most people can keep their homes and cars in a bankruptcy if they pay the lienholder the regular monthly installment.

A Chapter 13 bankruptcy does not cancel all debts, but provides for a payment of either all or a portion of those debts, usually over a time period of 36 to 60 months. In a Chapter 13 bankruptcy, we prepare a plan of how you will pay your creditors. While most people are better off with a Chapter 7 bankruptcy, Chapter 13 can provide special ways of solving particular financial problems. For instance, some unpaid income taxes cannot be discharged in a Chapter 7 bankruptcy, but a Chapter 13 plan can provide for the payment of all taxes over a period of up to 5 years.

Business reorganization conducted under Chapter 11 is complex and requires sophisticated legal services. The Family Farmer Reorganization under Chapter 12 is usually less time consuming and costly than a Chapter 11.

Answers to common bankruptcy questions:

Q. When will creditors stop harassing me?

A. Generally, you are "fair game" for a creditor until a bankruptcy petition is actually filed with the court. As a practical matter, however, most creditors will cease collection efforts once you retain us as your lawyers.

Q. Will I ever get credit again?

A. Yes, but you must earn it. Someone who has completed bankruptcy should make timely payments on continuing obligations such as mortgage and car payments. Another way to help rebuild credit is to open a savings account and carefully use a secured credit card.

Q. Will they come and take my property if I file bankruptcy?

A. Under the state and federal law, certain property is exempt and cannot be taken by a person's creditors. We will discuss this issue in the first conference.

Q. What will creditors with mortgages against property do in a Chapter 7 case?

A. Creditors with valid mortgages against the debtor's property are usually permitted to repossess or foreclose on the property. However, if you reaffirm the debt and continue paying the creditor, you may be able to keep the collateral.

Q. How does the filing under Chapter 7 affect lawsuits and garnishments already filed against the debtor?

A. The filing of a Chapter 7 case automatically stays or stops most lawsuits and garnishments. A few days after a Chapter 7 case is filed, the court mails a notice to all creditors ordering them to refrain from any further action.

Q. Can taxes be discharged in bankruptcy?

A. Potential discharge of taxes in any bankruptcy proceeding is complicated. Generally, however, income taxes may be discharged if the tax arose more than three years and the return was filed more than two years preceding bankruptcy. Chapter 13 and 11 bankruptcy may be used for long-term payment of non-dischargeable taxes.

Q. Where must a person go to court in bankruptcy and what happens?

A. The first court appearance is called the "meeting of creditors" and is held a month after the case is filed. At this hearing the debtor is put under oath by the trustee and questioned about money, property, and debts. This is normally the only court appearance. All southwest Missouri bankruptcy meetings are in Carthage or Springfield.

Q. Do many people file for bankruptcy protection?

A. Last year over 1 million bankruptcy petitions were filed nationwide.