L. PHILLIP DEW
Attorney at Law
7660 S. 800 W. (Holden St.)
Midvale UT 84047
Telephone 801-566-3322
Fax Number 801-566-2422
E-mail: dewatt@xmission.com
Web Site: www.dewlaw.com Answers to Frequently Asked
BANKRUPTCY QUESTIONS
Where did the concept of bankruptcy come from? The first written record of the release of debt comes from the Old Testament. In the Law of Moses, every seventh year was the Sabbatical Year, the Year of the Sabbath. In Deuteronomy 15:1-10, the Law of Moses commanded that at the end of the Sabbatical Year all debts must be released. In later years, when the Law of Moses was generally disregarded, a person who got in debt was thrown into debtors' prison. (This was a bit counter-productive, because a person in jail can't make money to pay off his debts. But it made the creditors happy). This continued in most societies until the first half of the 1800's, when Great Britain and the United States passed the bankruptcy laws to help (not punish) the debtors. Debtors' prisons were abolished. As a result, debts were released and the person got a new start in life.
How bad is this going to hurt my credit? It usually worsens it (if that is possible). The law permits a bankruptcy, either Chapter 7 or 13, to be listed on your credit report for up to 10 years. However, many Credit Bureaus list a Chapter 13 for only 7 years. Either way, it hurts. (Actually I've had some clients with credit so bad that a bankruptcy was practically a step up for them. Your results may vary.)
If I file a bankruptcy, is it true that I can't buy a home in this life or the next one? No. That's the only good news I can give you. Two years after you file bankruptcy, either a 7 or a 13, if your income is sufficient and you otherwise qualify, most people don't have trouble getting a home loan. Some people get in much sooner. Recently one of my client couples got into a $160,000 home 13 months after filing a bankruptcy. They got a 7% fixed-interest-rate loan, with no down payment. They have the same jobs they had when they filed, with the same income. But because of much-reduced debt, they qualified for the loan. However, for the majority of qualifiers, it takes about two years to get into a home.
Will I ever be able to get another car? Yes. After your Chapter 7 is discharged, many car dealers will be thrilled to sell you a car. But you are looking at high rates of interest for the first few years after you file a bankruptcy, unless you have a co-signor. (The rules that allow getting into a house quickly at low interest rates don't apply to cars). Several finance companies will finance a car for you now at high rates, but lower the interest rates if you continue to make timely payments. Two or three years after you file, many people are able to refinance the cars with normal banks at normal rates of interest.
Will I be able to get credit cards? Unfortunately, yes. I say "unfortunately" because the credit card companies get the addresses of people who file bankruptcy and send out swarms of tempting new credit card applications. Those new credit cards come with very high rates of interest. Maybe having one credit card for true emergencies isn't a bad idea. Otherwise, debit cards are a safer alternative. As time goes by, you should be able to get normal credit cards at normal rates of interest. For years I attended the monthly meetings of the National Association of Credit Managers. The consensus of opinion at those meetings was that three years after a person files bankruptcy, if they incur no new bad debt, they were regarded as credit-worthy at normal rates of interest. Some places regard you as credit-worthy much earlier than that.
Is my bankruptcy kept confidential? All of the things that you tell me are absolutely confidential. That's the law. But if you choose to file a bankruptcy, all of the papers we file with the court are matters of public record. Anyone can go to the court and look at them. However, unless you are a politician, serial killer, or other such celebrity, no one looks. Or cares. The court does not routinely notify employers. Your name will be published (in small print) only in the Intermountain Commercial Record, a small weekly newspaper that is purchased mainly by credit managers, attorneys, and other such nerds like me.
Is it true that I can bankrupt out of taxes in a Chapter 7? It is possible to bankrupt out of income taxes, but there are very strict rules that must be complied with in order to do it. The income taxes have to be more than 3 years old, the tax returns have to have been filed more than two years before the filing of the bankruptcy, and they cannot have been assessed within the last 270 days. However, if you failed to file tax returns for several years and then file them all at once, even if the two years have passed, court case law says that you won't be able to bankrupt out of the taxes. Though the rules are strict, many of my clients have qualified to be able to bankrupt out of older income taxes. You can never bankrupt out of "trust fund taxes". Those are usually associated with people who had a business. Employers are required to withhold from their employees' paychecks state and federal taxes and FICA. If those are withheld by the employer but not sent in to the IRS or State, you can never bankrupt out of them. State sales taxes and federal excise taxes that are collected but not sent in are also "trust fund taxes", which can never be bankrupted out of.
If my taxes don't qualify for Chapter 7, what can I do? The Chapter 13 is a very effective way to deal with the IRS and state taxes that you can't bankrupt out of. Taxes less than three years old have to be paid back in full, but usually without interest, and penalties cease the instant you file your Chapter 13. The court gives you up to five and 1/2 years to pay them back.
Can I bankrupt out of Child Support in a 7? No. But you can pay your back child support in a Chapter 13, stretched out over five & 1/2 years. Some people are having enormous amounts garnished out of their pay for both old and current child support, making it difficult to get by. After you file a Chapter 13, only the current amounts due can be taken out of your pay.
Is it true that I can bankrupt out of student loans in a 7? The answer is probably not, with very few exceptions. The guidelines are this: If you have a head and two arms and both legs, you can't bankrupt out of student loans. Well, it's not that extreme, but its very tough. Your situation has to be so bad that it would bring the judge to tears and make the bailiffs wants to "pass around the hat" for you. Your chances of qualifying are only slightly better than winning the Idaho lottery. But in a Chapter 13, you can often "buy" yourself a five & 1/2 year "deferment" in most cases, by paying them a small percentage of what you owe, with the understanding that when the Chapter 13 is over in five & 1/2 years, you will make payment arrangements with them.
What if some of my debts are cosigned? If you file a Chapter 7, the creditors on the cosigned debts can go after your co-signor, unless you make satisfactory arrangements with them. In a Chapter 13, if you agree to pay the cosigned debt back in full through the 13, the creditor cannot take any action at all against the co-signor.
May a husband and wife file together? Yes. That way both get the same protection, and you only have to pay one court filing fee and one attorney's fee.
Do I lose any legal rights by filing a Chapter 7 or 13? No. It is not a criminal proceeding, and you lose no civil or constitutional rights.
When I got a paycheck loan, I signed an agreement not to file bankruptcy. What can they do to me if I file? Suppose you had signed an agreement with a creditor that said if you failed to pay, they could shave off your wife's hair, sell your children into slavery, and force you to live in Rock Springs, Wyoming. Would that be valid? Of course not. There are certain rights that you cannot waive.
If I file a bankruptcy, do I have to go to court? In a Chapter 7, you go to a short hearing (usually less than 3 minutes) about five weeks after you file. It is held in front of a bankruptcy trustee, not a judge. I will be there with you. In a Chapter 13, we have a short hearing in front of a bankruptcy trustee in 5 weeks, and another short hearing in front of a judge in 7 months. The judge will direct all of his questions to me. At the hearings, everyone is polite. Nobody tries to embarrass you, nobody looks down on you, and nobody makes snide remarks. There is no reason at all to "get stressed". (If you want to "get stressed", it is allowed, but there is no reason for it.)
If I owe money to utilities, can they shut off my service if I file? Because utilities are monopolies, they are closely regulated. (It's not like you can decide, "I'm not going to get my natural gas from Questar, I'll take my business elsewhere"). Even if you owe them a great deal of money for past due services, you can bankrupt out of those bills. They have to allow you to keep your services provided that you give them a deposit.
Is it true that I can bankrupt out of a second mortgage or third mortgage and still keep my home? Yes, under very strict circumstances. If your home is worth less than you owe on your first mortgage, you can bankrupt out of the second mortgage and third mortgage. For example, say your house is worth $100,000. You owe $110,000 on it to the first mortgage. You could remove the second mortgage in a special bankruptcy proceeding. (It costs extra). Or suppose your house is worth $100,000, and you owe $80,000 on your first mortgage and $25,000 on your second mortgage. Since the first two mortgages ate up all the value on your house, if you have a third mortgage, you can remove it in a special proceeding.
If you have questions about your specific situation, contact us anytime. We are happy to answer your questions and schedule e FREE CONSULTATION to meet with you. 801-566-3322
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