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Some of the first questions I’m asked by an individual or couple thinking about filing a consumer bankruptcy include, “Will debt collectors stop harassing me if I file bankruptcy?” “Will filing bankruptcy stop the foreclosure on my home?” “Will filing bankruptcy stop the lawsuit by my credit card company because I could no longer afford to pay my credit card bill?” “Will filing bankruptcy stop the garnishment on my paycheck earnings?”

These are all very good questions. Depending on circumstances, the answer to each in many cases is, “yes, yes, yes and yes.” If you’re asking these questions due to your current financial circumstances, continue reading.

“Will the debt collectors stop calling and harassing me if I file bankruptcy?” Yes.  The United States Bankruptcy Code (11 U.S.C. § 362) affords certain forms of relief when filing bankruptcy. One of the forms of relief is called the “automatic stay.”  The automatic stay is an injunction that is issued automatically upon the filing of a bankruptcy petition.  It’s is a very powerful form of relief because once issued (meaning the minute you file your bankruptcy petition), any debt collector that has been calling you at all hours of the day must immediately stop calling you altogether, subject to certain exceptions. Then — finally — peace and quiet can be yours.

“Will filing bankruptcy stop the foreclosure on my house?”  The answer is not a solid yes.  If your home is already in the foreclosure process then the automatic stay will temporarily halt these proceedings, however, the lender may still seek relief from the U.S. Bankruptcy Court to have the automatic stay lifted and continue with the foreclosure process.  So, while it will temporarily halt the foreclosure process, it won’t necessarily stop it altogether, subject to exceptions.  If you still reside in the home that is being foreclosed upon and do not intend on keeping the home, filing bankruptcy may give you a little more time to prepare for your next move.  If you are in the foreclosure process and want to keep the property, you may want to consider filing a Chapter 13 rather than a Chapter 7.

“Will filing bankruptcy stop the lawsuit by my credit card company, because I could no longer afford to pay my credit card bill?” Yes. Filing bankruptcy stops most civil proceedings and often times the debt that you’re being sued for will be discharged in the bankruptcy as well.

“Will filing bankruptcy stop the garnishment on my paycheck earnings?” Yes. Again, the power of the automatic stay comes into play. A garnishment on your paycheck must stop on the date of filing of the bankruptcy petition.  That means, the wages you earn after filing of the petition are yours and not the creditors. There may, however, be an exception for a garnishment that is due to child or spousal support payments.

Bankruptcy is a serious step that needs to be looked at from all different perspectives. If you find yourself asking the above questions because you are experiencing your own financial woes, bankruptcy may be an option for you to further explore with a qualified attorney.

ARTICLE 5-A

Bankruptcy 101:

People get overwhelmed with debt for a number of reasons. For some, it may be because they found themselves in circumstances beyond their control. For others, it might have been plans made that were within their control, but things did not go as planned.  And for many, it may be a little of both.   For almost everyone, the deteriorating economy is pushing more and more people into financial conditions they never predicted.

Whatever the reason, it leaves many feeling helpless and alone.  There is also the confusion of simply not knowing where to turn and what to do.  It is important to know that there are options, there are choices, and there is hope. Despite the sweeping changes to the US Bankruptcy Code in 2005, relief is still available.

Dealing with the debt has been stressful enough. Our job is help our clients through the bankruptcy process and get them moving forward again.

Personal/Consumer Bankruptcy

Changes in expenses, rises in energy costs, and increasing monthly mortgage payments, a sudden job loss or family health crisis can hurt one’s bottom line. Sometimes just one can lead consumers to unmanageable debt. And with the bill collectors and their lawyers in hot pursuit it can make a tough situation even tougher. Successfully guiding our clients through the bankruptcy process is our goal.

Generally, there are two bankruptcy Chapters consumers use the most: Chapter 7 and Chapter 13 although some consumers can still use Chapter 11.

Before reading about these chapters, it is important to know about the protections afforded by any bankruptcy chapter: The Automatic Stay. When a bankruptcy petition is filed, Section 362 of the US Bankruptcy Code imposes a stay on all collection activities. Foreclosures must stop in their tracks; automobiles cannot be repossessed; and collection activities must cease. While the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made some significant changes to Section 362, the protections are still there for most debtors.

“Will the debt collectors stop calling and harrassing me if I file bankruptcy?”

Yes.  The United States Bankruptcy Code (11 U.S.C. § 362) affords certain forms of relief when filing bankruptcy. One of the forms of relief is called the “automatic stay.”  The automatic stay is an injunction that is issued automatically upon the filing of a bankruptcy petition.  It’s is a very powerful form of relief because once issued (meaning the minute you file your bankruptcy petition), any debt collector that has been calling you at all hours of the day must immediately stop calling you altogether, subject to certain exceptions. Then — finally — peace and quiet can be yours.

“Will filing bankruptcy stop the foreclosure on my house?”

The answer is not a solid yes.  If your home is already in the foreclosure process then the automatic stay will temporarily halt these proceedings, however, the lender may still seek relief from the U.S. Bankruptcy Court to have the automatic stay lifted and continue with the foreclosure process.  So, while it will temporarily halt the foreclosure process, it won’t necessarily stop it altogether, subject to exceptions.  If you still reside in the home that is being foreclosed upon and do not intend on keeping the home, filing bankruptcy may give you a little more time to prepare for your next move.  If you are in the foreclosure process and want to keep the property, you may want to consider filing a Chapter 13 rather than a Chapter 7. 

“Will filing bankruptcy stop the lawsuit by my credit card company, because I could no longer afford to pay my credit card bill?”

Yes. Filing bankruptcy stops most civil proceedings and often times the debt that you’re being sued for will be discharged in the bankruptcy as well.

“Will filing bankruptcy stop the garnishment on my paycheck earnings?”

Yes. Again, the power of the automatic stay comes into play. A garnishment on your paycheck must stop on the date of filing of the bankruptcy petition.  That means, the wages you earn after filing of the petition are yours and not the creditors. There may, however, be an exception for a garnishment that is due to child or spousal support payments. 

However, the stay is not always available: the 2005 amendments to the Bankruptcy Code imposed limitations on the availability of the automatic stay.  This is especially true in cases where someone has had another bankruptcy case pending in the past year.  In some cases, the stay will only be available for 30 days, and in other cases, the stay will not be available at all.   To be sure that you enjoy the benefits of the stay, please contact Dana Law Firm, P.A.

Can I File Chapter 7 Bankruptcy?

The biggest change for individuals brought by the 2005 amendments to the Bankruptcy Code is that now individual debtors with mostly consumer debt must qualify by passing a financial means test to file a Chapter 7 bankruptcy. If you do not qualify to file bankruptcy under Chapter 7, you may still file bankruptcy under Chapter 13 of the Bankruptcy Code.

A debtor whose household income falls below the median income for Arizona automatically qualifies to file a Chapter 7 bankruptcy. If your household income is less than the median income for Arizona for a family of your size, you can file Chapter 7 bankruptcy. The median income for a family of your size as well as all of the means testing information can be found at the following web site: http://www.usdoj.gov/ust/eo/bapcpa/20090315/meanstesting.htm.

If your household income is more than the median income for Arizona, you must complete a second part of the test which deducts your allowable expenses from your income. In general terms, if your available income after expenses allows you to pay $10,950 to your creditors over a 5 year period you may not qualify for Chapter 7.  Additionally, you must not have had a bankruptcy discharge in the last eight years. Most people with serious debt problems are eligible for filing Chapter 7 bankruptcy.

Should I file a Chapter 13 Bankruptcy?

Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in a number of ways. The most important difference is that in a Chapter 13 bankruptcy, you are obliged to repay a portion of your unsecured debts. Generally, Chapter 13 is also a better way to prevent foreclosure on your home and the seizure of your other assets. We offer a free initial phone consultation to better assess your financial situation and determine if filing Chapter 13 bankruptcy is the best option for you.

When you file Chapter 13 bankruptcy, you submit a plan to repay your debts over a three to five-year period. Regularly scheduled payments on secured debts (those secured by property such as your home or car) must be paid during the Chapter 13 case. You even have the opportunity to cure arrearages or catch up on your late payments on your secured debts over the life of your Chapter 13 case. However, unsecured debts such as credit card bills, hospital bills and, in some cases, unsecured second or third mortgages may be paid back at pennies on the dollar.

The bankruptcy laws determine how much you will pay based on your income and expenses. At the end of the three to five-year period, generally, all remaining unsecured debts will be discharged.  Chapter 13 bankruptcy is an option when you cannot pass the financial means test necessary to file a Chapter 7 bankruptcy or when you have significant assets you would lose by filing Chapter 7 bankruptcy. Additionally, individuals filing for Chapter 13 must complete credit counseling prior to filing, as well as a financial management course after the filing of the bankruptcy. 

Filing Bankruptcy and Home Foreclosure?

Upon filing either Chapter 7 or Chapter 13 bankruptcy, the automatic stay will immediately be effectuated upon the bankruptcy petition filing. The automatic stay immediately stops a home foreclosure and all other debt collection activities. However, when you file Chapter 7 bankruptcy, the automatic stay is only temporary. You may still lose your home if you are unable bring your payments current or otherwise come to an agreement with your mortgagee.

If you are significantly behind in your mortgage payments, filing Chapter 13 bankruptcy allows you to put your arrearage into a payment plan and pay it over a three to five-year period depending on your circumstances. You may be able to pay back less than the full amount of second and third mortgages by doing a “lien strip” in certain circumstances as well, i.e. if your home is worth less that you paid for it or if you have unsecured second or third mortgages. Chapter 13 is a form of bankruptcy protection often used by homeowners who are significantly behind in their mortgage payments.

Required Legal Notice: “We are a debt relief agency. We are proud to assist people file for bankruptcy relief under the U.S. Bankruptcy Code.”