Question and Answers about Bankruptcy

 

Law Library Cubicle 2

Toby Coleman at the State Law Library in Jackson, Mississippi

What is the definition of bankruptcy? 

In the legal sense bankruptcy is a term for the court procedure that allows consumers to eliminate or reduce some or all of their debts.   In this process the consumer is protected from actions of their creditors by the Court.  The consumer’s property is then administered by agents of the court for the benefit of that individual’s creditors.

Should I file for bankruptcy?

This is a common question.  More information about this important decision can be found here and here.

How does a bankruptcy stop calls from creditors and other collection actions?

When a bankruptcy is filed, the Court issues an order called the automatic stay.  The automatic stay halts creditor’s actions to collect debts against you including, phone calls, repossessions, lawsuits, garnishment of wages, garnishment of bank accounts, utility disconnects, and seizing property.  The stay is effective until lifted by the Court.   Please note that some collection actions, such as for child support, are not halted by the automatic stay.

How long does bankruptcy last?

The entire Chapter 7 process can take around four to six months.  Typically a Chapter 7 bankruptcy will only require one visit by you to the courthouse.  As discussed in more detail below, the Chapter 13 process involves a Court administered payment plan that lasts between three and five years.

Can I get rid of my medical bills with bankruptcy?

Yes.  Medical bills are typically considered an unsecured debt and can be reduced if not completely discharged in bankruptcy.  To read more about medical bankruptcy and medical bills click here.

Can I get rid of credit card debt in bankruptcy?

Yes.  Credit card debt is typically wiped out by bankruptcy.  Read more here.

Can I pick which debts to include in my bankruptcy?

No.  Although you will have some choices to make about the way certain debts are handled in bankruptcy, you are required to list all debts owed in your bankruptcy filing.  This gives all of your creditors fair notice so that they can submit claims to the Court in an orderly fashion.  If there are debts that you want to pay back in full, there is nothing that stops you from doing so once the bankruptcy is complete.

How does debt settlement compare to bankruptcy?

For a fee, debt settlement firms will typically offer to settle debts with your creditors.  Usually nothing is done by the debt settlement agency until you have paid them enough money to settle the debt.   Unlike bankruptcy with its automatic stay, consumers in debt settlement programs continue to face collection actions.  Unlike bankruptcy, fees and interest on the debt continues to add up in a typical debt settlement plan.  Another major downside to debt settlement is that the debtor will typically owe taxes on the amount of debt written off.  Compare this with bankruptcy, where reductions in debt generally are not taxed.  For more click here.

What is Chapter 7 bankruptcy?

A Chapter 7 bankruptcy is used to cancel many or all of your debts.  To get you off to a fresh start the law allows you to keep certain “exempt” property.    Exempt property is a portion of property that is removed from the bankruptcy to get started with your new financial life.   While you may keep certain exempt property, you might be required to give up non-exempt property to the court appointed Trustee so that it may be sold to repay creditors.   How this ultimately works out depends on each individual’s own unique situation.  Click here for more information.

Can Chapter 7 bankruptcy stop foreclosure?

Yes.  The automatic stay entered by the Court in a Chapter 7 stops the foreclosure process until the stay is lifted.  If you are not current on your mortgage payments, the mortgage holder is usually able to have the stay lifted so they may proceed with the foreclosure.   In order to keep the home, you may need to enter a reaffirmation agreement.  A reaffirmation agreement is an agreement by you with a particular creditor to pay some or all of that particular debt.  In exchange for the agreement to pay, the creditor agrees not to foreclose on the property so long as the payments are made.

Will bankruptcy stop collection phone calls?

When a bankruptcy petition is filed an immediate and automatic injunction called the “automatic stay” makes it illegal for creditors to continue with any collection efforts.  However, you can stop creditor phone calls prior to filing bankruptcy by sending a written request to stop calling.  Learn more here.

Can bankruptcy stop a wage garnishment?

For most types of debt, you can stop a wage garnishment with bankruptcy.

Will I lose my car?

Usually not.  We will work to make arrangements for you to keep your car through the bankruptcy process.  If your car is about to be repossessed or was very recently repossessed, bankruptcy can be used to stop the process.  Click here to learn more about car repossession.

What is a Chapter 13 bankruptcy? 

Chapter 13 is a type of bankruptcy that allows those with regular income to adjust or “reorganize” debts.  Chapter 13 bankruptcies allow you to reorganize your debts without selling or liquidating assets.  You do this by submitting a payment plan over a period between 3 to 5 years.  During this 3 to 5 year period, the Court prohibits creditors from trying to collect debts or recover property from you.

Can Chapter 13 bankruptcy stop foreclosure?            

Yes.   A Chapter 13 plan can be used to stop a foreclosure and cure or catch up on missed mortgage payments through the payment plan.

When do I have to make my 1st Chapter 13 payment?

During a Chapter 13 payment plan, your regular payments are made to the Chapter 13 Trustee.  The money collected by the Trustee is then paid to your creditors according to the plan.  Your first Chapter 13 payment is due to the Chapter 13 Trustee within 30 days after filing your plan.

What if I am temporarily unable to make the payments?

Call your attorney immediately!  Depending on the circumstances surrounding your inability to pay, you may be able to temporarily suspend payments, change your plan, or convert your plan to a Chapter 7 bankruptcy.

What is the difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy?

Click here to learn about the many differences between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy.

Will bankruptcy remove judgments against me?

You can usually cancel a judgment in bankruptcy.

Can I get rid of student loans through bankruptcy?

Although it is possible to get rid of student loans, it is extremely difficult to do so.  Learn more about student loans in bankruptcy here.

Can I get rid of tax debts through bankruptcy?

Under certain circumstances you may be able to get rid of tax debts in bankruptcy.  Also, a Chapter 13 bankruptcy can be used to stop interest and penalties from adding up on this type of debt and can be a useful tool for managing and paying of tax debts.

Who will know about my bankruptcy?

Typically only those who you tell and a small group of individuals and companies who are required to be notified as part of the bankruptcy process will know about it.  Learn more here.

What effect will bankruptcy have on my credit?

Whether or not bankruptcy has a negative effect on your credit depends on your own personal situation.  For anyone with a pristine credit record bankruptcy will hurt their credit.  For those who are already dealing with past due and unpaid bills, bankruptcy may have little or even a positive effect on your credit.  In that case bankruptcy can actually act as a credit repair tool.  Read more about credit and bankruptcy here.

Can I go to jail for failure to pay a debt in Mississippi?

Generally speaking, No.  Article 3, Section 30 of the Mississippi Constitution states, “There shall be no imprisonment for debt.”  But be careful because there are certain debt related actions that can potentially land you in prison such as failure to pay back child support or writing a bad check.  In the the case of back child support the imprisonment is not based on the debt itself, but is based on contempt, or deliberate failure to obey the court’s order regarding payment of child support.  You can also face possible jail time for writing bad checks if you don’t make timely restitution for the check.  Even though it has to be paid back, a bad check is not actually a debt but is a draw on funds that you have in the bank.

Can I include payday loans in my bankruptcy?

Yes.  Read more here.

How often can I file for bankruptcy?

The answer to that question depends on the type of bankruptcies filed.  Learn more here.

Do I have to file with my spouse?

No.  A bankruptcy may be filed jointly or by a single spouse.  We can help you decide if filing one way or another may be more beneficial for you.  Often times financial difficulties go hand in hand with divorce.  You can learn more about bankruptcy and divorce here.

Is filing bankruptcy immoral?

While people are generally expected to pay their debts, we must balance that with the need for compassion and forgiveness.  In 1787, the idea of forgiving debt was adopted in the United States Constitution.   Under these constitutionally granted powers, the legislature enacted the bankruptcy code in its current state.  We can also see this age old ideal of routine debt forgiveness stated in the Bible.  Leviticus 25:39Deuteronomy 15:1-2.  History aside, our bankruptcy laws now provide a formal legal system of forgiveness to lessen the hardships faced by honest but unfortunate debtors and their families.

 

What should I do next?

Please contact us at (601) 853-9966 to set up a free and confidential consultation.