Common Bankruptcy Questions

  • Will I ever get credit again?
    • Yes.  Most recover credit within a year and a half. Bankruptcy can be on your credit report for ten years. However, so are all the late payments, judgments, repossessions, foreclosures and the like. Bankruptcy clears the slate, and permits a person to move forward. Your credit report is only one of the factors taken into account in evaluating a person for a loan. A key factor is the amount of existing debt the person still owes and shows up on the credit report. Remember, however, that getting new credit lines to continue living on debt is not the answer. Learn to manage your finances, and borrow only when the expected return will exceed the total cost of the debt.

  • Will I lose my job?
    • No. The law prohibits discrimination against a person for having filed bankruptcy. If there is any impact it’s because of a finding of personal financial irresponsibility, not because of the bankruptcy by itself, which is often a result of events beyond the person's control such as divorce, a job lay-off, illness, etc. Even then, losing employment because of personal financial irresponsibility is limited to the rare job that absolutely requires that in the holder of that position. Often, it’s your performance on the job, not what you do in your personal life.

  • Will my employer find out?
    • No. The filing is a public record in the court, but the information has to be actively sought out. As stated above, it is prohibited as grounds for employment discrimination.

  • Will I be turned down for a job in the future?
    • No. See answer above.

  • Will I lose my security clearance?
    • Probably not. But this is a question that should be checked in in your particular situation, the type of clearance you have, and your employer. However, generally the bankruptcy  itself is not the issue. The issue could be the person’s inability to manage his personal finances, if that is a factor. Our firm has had clients who have had to file and continue to work for sensitive governmental agencies, such as the FBI and Transportation Safety Administration (TSA).

  • Will it affect my immigration status?
    • No. The bankruptcy  itself does not have an impact. Bankruptcy provides relief from debt, but is not a “public benefit” in the sense of directly providing cash or subsidized support for living expenses long-term from a governmental source.

  • Will I get rid of all my debts?
    • Yes. Generally, the debts of a typical consumer debtor are mostly of the types that are fully discharged, such as credit cards, judgments, deficiency judgments for debts remaining from foreclosure or repossession. There a few types that cannot, or are difficult to discharge, such as student loans (which can only be discharged upon a showing of extreme hardship by the debtor), governmental fines, debts stemming from some offenses society deems should not be released in bankruptcy, such as malicious acts of the debtor, or loans procured by fraud, and some types of taxes. Note, however, that the bankruptcy court gives you a forum in which to ask a judge to determine whether the debts are of the nondischargeable type.

  • Can I deal with my tax debts in bankruptcy?
    • Yes. Bankruptcy  can completely discharge some taxes, all penalties, and generally provide a means to pay what cannot be discharged in an interest-free payment plan, as well as provide a forum to determine the amount or contest the tax liability. Each situation, however, needs to be examined carefully to see what relief may be available.

  • What are the chances I will NOT be approved?
    • None. The main exception is if you lie to the court on what you present in your filing regarding your assets, liabilities, and financial affairs. A motion can be filed to order a dismissal of your case with a prohibition to re-filing for a stated time period, or a lawsuit within the bankruptcy  asking for denial of discharge of a specific debt. In some cases, criminal charges can be brought. Remember that your conversation with your lawyer is protected for disclosure. You can be candid and frank. Doing otherwise, will place your case, and you, at risk.

  • I am waiting for approval of a loan modification. Will it be affected?

  • Will someone from the court come to my house?
    • No. Again, this is very rare. The only time that it may happen is if the court-appointed administrator in Chapter 7 needs to send over a realtor, or an appraiser, to value the home, or property, in the rare instance that the debtor has non-exempt property. This issue would be anticipated beforehand. Any visit would be coordinated with your attorney.

  • Chapter 13: Common Client Concerns
    • In Chapter 13  the debtor, in his plan, proposes a payment to the court determined in part upon his income, and on what he proposes to do in his plan to restructure his finances. Chapter 13 raises its own set of common questions:
      • What if I get a raise during the time I am in the plan?
        • In the bankruptcy courts of Maryland and Virginia, the 4th Circuit Court of Appeals has ruled that a plan payment can be modified post-confirmation only where there has been an “unanticipated, substantial” change in the debtor’s finances. There is no exact dollar figure of what that means, but it can safely be stated that normal year-to-year raises will not trigger a payment increase.
      • What if I need a loan to replace my car?
        • The debtor needs to seek court approval. But generally, if the request is necessary, reasonable, and will improve the debtor’s performance in the plan, for example, a car loan to get a modest vehicle that will provide transportation to and from work, the courts will permit the debtor to take out new debt.
      • Will my employer find out?
        • In almost all cases, the court will require an order to the employer to deduct payments directly from wages. However, it goes to the payroll department, not your supervisor. Again, you’re protected from employment discrimination. In fifteen years of bankruptcy  practice, we have yet to see a client lose his job for exercising his legal rights.

  • What are some of the common mistakes to avoid?
    • Often, debtors come to the bankruptcy lawyer's office after already having made costly mistakes that could easily have been avoided, including:

      • Borrowing against a home to pay down credit cards. Now the debtor has turned what, in many cases, was unsecured debt, which could have been wiped out completely, into secured debt that the debtor must pay off or lose the house. Worst yet are predatory loans where the payments are so onerous as to make foreclosure almost a certainty.
      • Borrowing against a 401K plan. The debtor takes a loan out against a 401K plan and then finds he can't make the payments. If the debtor defaults, a distribution of the full loan proceeds will be declared for that tax year. The debtor will now have a tax liability (that cannot be discharged) equaling about a third to a half of the loan taken out to pay debt that was probably dischargeable in the first place.
      • Moving debt around to take advantage of low-interest credit card offers. If the debtor files bankruptcy within a short time after this transfer, lenders left "holding the bag" often move in court to block the discharge claiming fraud for incurring the debt when the debtor knew he would not be able to pay it back.
      • Playing the "ostrich." Unable to face his or her financial problems, the debtor avoids getting help. For persons with back tax debts, the delay permits interest on priority taxes (that you must pay off) to build and also gives the IRS time to file a tax lien, again making what may have been a dischargeable tax debt into secured debt the debtor must now pay off.
      • Getting help from the "one trick pony." When shopping for help, pay attention to 1) the range of solutions, and 2) the effectiveness of the solutions the debt professional offers. Ask questions.

        • Credit counselors. How much of my debt will be completely wiped out? Will I have to pay income taxes for the debt that is wiped out? (You probably will, especially if the creditor reports "cancellation of debt" income for you to the IRS.) How much will I have to pay in total? How many months will it take to be debt free? How much total principal and how much total interest will I pay? Will my interest rates go up?
        • Accountants and enrolled agents. For debtors with tax debts, be aware that neither one of them can offer the bankruptcy option unless they have a license to practice law. Usually they will offer only an offer in compromise, which may not be the best option for your case, or an installment agreement which is almost no relief at all. Ask: Would this tax debt be dischargeable in bankruptcy? Are you making a guarantee that my offer will be approved? What amount will be accepted as an approved offer by the IRS? How long will it take? As for an installment agreement, it's just that: Pay over time while interest and penalty charges continue to grow.
          • Attorneys who practice only Chapter 7 bankruptcy. This is a bit like going to a doctor who can prescribe only one type of medicine. Your specialist should be able to perform a full diagnosis and then prescribe a range of treatments. Ask: Does the attorney prepare, file and represent debtors in Chapter 13 or Chapter 11? What are the local Chapter 13  trustee's preferences as to the type of plans he or she will accept? How much of his or her practice is devoted to bankruptcy? How long has he or she been practicing this area of the law? For tax problems, does the attorney practice before the IRS? What options does he or she offer?

  • How long does it take?
    • Our firm can prepare a complete filing within a week, and an emergency bankruptcy filing within an hour to invoke the automatic stay and stop debt enforcement action immediately. (Note: Credit counseling has to be performed before the filing or the case will be rejected by the court. This can be done on-line.) Also, generally, all fees and costs are due before the filing is submitted to the court.

  • How much does it cost?
    • Presently the court filing fee is $299 for Chapter 7 and $274 for Chapter 13. The attorney's fee is regulated by the court. The truth is bankruptcy attorneys charge within a few hundred dollars of each other --not much of a difference when the total debt discharged runs into the tens of thousands, and even less important when one considers that most low-cost providers make profit by doing cases in volume and spending less time explaining issues to the client. At the consultation, our office provides an estimate before the work begins.

  • What do I need to do to get started?
    • Call our office for a free consultation  so we can go over your situation and do planning the right way. If you have time before you come over, go to “Forms”  under “Helpful Information”  on this website. Print and fill out the Client Questionnaire and bring it to the office, along with six months of pay stubs (if you have them) and your most recent tax returns. Any other relevant documents you have readily available would be helpful such as the most recent letters from IRS, or state tax authority, lenders, attorneys, court filings on pending suits by you or against you, the closing binder for the purchase of your home, and the most recent bills from your mortgage lender showing the current payment and mortgage balance.

We sincerely look forward to helping you with your problem, and putting you back on the road to fiscal health.