Introduction

Since I started practicing law in May 1974, I have represented a lot of clients.  I have handled every kind of case from murder to spitting on the sidewalk, and from million dollar personal injury cases to real estate closings on bungalows.

I now concentrate on consumer bankruptcy cases.  Why?  It's happy work.  I can solve a real problem for people, in an orderly manner.  I make it a practice not to do a bankruptcy for anyone who will not be happier for having done it.

Sometimes clients come in with real disasters. The first bankruptcy I handled was in 1974. I still remember it. I was practicing law in a general practice firm in Chicago in the Bridgeport neighborhood at 33rd and Halsted. A lady came in and said, "I need to file bankruptcy."

Bankruptcy was not taught in law school in the early 70's. The only thing I knew about bankruptcy is that my father was always talking about how we were too poor to file bankruptcy! So, thinking quickly, I excused myself and went to the law books in another section of the office. After finding nothing in the state law, I looked in the index to the Federal statutes. There it was. So I figured I could do it if it was in the book.

I asked the lady why she wanted to file a bankruptcy. She said that she was a recent widow, and she had a lot of bills she could not pay. She spread out the bills on my desk and said that the police had found them in her husband's truck, and he had shot himself in the head while parked by the lagoon in Douglas Park. She thought he was despondent about not being able to pay his debts. I looked down, and there were brown spots of blood all over the bills.

It made a big impression on me: someone was so upset that instead of simply eliminating their debt, they killed themselves.

So I found out how to file a bankruptcy for her, and she received a discharge: a fresh start. I went on to represent her in an immigration matter, she remarried, and I represented her in various matters for years. But I always remembe that case.

Most people are so conditioned by banks and lenders, with assistance from the media, that they actually do extreme things instead of simply seeing a bankruptcy attorney instead. They are so afraid of not being in debt. For no reason.

Newspapers and television "financial counselors" never mention bankruptcy. Nor do the high school textbooks used in the required financial course that every high school student in the country has to take. So it is hard to find honest information on one of the best laws in the United States. That is why I wrote this book.

Chapter 1 How to have a Happy Bankruptcy

Why would anyone be happy about having to file a bankruptcy?  The answer is, you're not happy because you have to, but because you can.  If there were no bankruptcy laws, you would have no way out of financial trouble.

The bankruptcy laws, and how they can help you, are not known to the general public.  When a person finds out that they can get out of debt, and start fresh, without giving up any possessions, they are generally very happy.  No one files a bankruptcy case unless they have to.  If you have the money to pay your bills, pay them!  If you don't, read this book, contact a bankruptcy lawyer, get the proper advice, and have a happy bankruptcy!  It is possible.

Why would you be happier if you kept your house, kept your vehicle, kept your pension, kept your household furnishings, and had no debt, and could save money each month for retirement? Why wouldn't you?

Realize that if you have $20,000.00 in credit card debt at 18%, and just make the minimum payments at 2.5% of the balance, never using the card again, it will take you 37 years to pay it off. Go to our website, www.infotapes.com, and follow the links to msn.money, and bankrate.com. You will find useful financial calculators on those sites. Plug in your debt, and see that once you can pay only minimums, you have a life sentence of debt.

Why should you have a life sentence of debt? Be happy! Don't worry! If you can only pay minimums, collectors are calling, you have to charge necessities, you may be better off filing Chapter 7 and getting a discharge of that debt. You might also file Chapter 13, which is a no-interest debt repayment. You could take that $500 a month and repay it in full without interest over less than 48 months.

 

Chapter 2   WHAT IS BANKRUPTCY AND IS IT "BAD"?

The word "bankruptcy" is often misused.  It has the common meaning of something wrong or immoral.  That is not true.  Bankruptcy is a very moral law that puts you on an even footing with people who have gotten you into debt by lending you money at interest.  It does not give you any unfair advantage. No one plans to get into debt so that they can do a bankruptcy.  Bankruptcy is simply a safety valve, so that people who cannot pay their debt without hardship have a way out.

If there were no bankruptcy laws, you would have to live with your debt forever.  In most countries, that is what happens.  The custom in Ethiopia is to chain the creditor and the borrower together, and let them work it out. I guess the idea is that they got each other into it, and it is up to them to get each other out of the situation!  A client from Chile came into my office, and told me that in Chile, if you owe someone money, the rich person you owe simply gets the police or the military to come to your house and rob you of everything, or perhaps murder you.  In the United States, it does not work like that.  We have the best laws in the world. 

Bankruptcy gets rid of bills. It is like a divorce from your credit cards.  It is that simple.  You can either discharge your debt immediately under Chapter 7 of the Federal Bankruptcy Code, or you can reorganize your debt, and pay it in lower installments over as long as 60 months, under Chapter 13 of the Code.  These two "Chapters" are the ones that refer to individuals.  Other "Chapters" are for corporations, farmers and railroads.  Since I only represent individuals, the other Chapters are not dealt with in this book.

Bankruptcy is not the end.  It is the beginning.  A "Discharge" is issued after a judge has examined your situation.  This means that all debts which are not "exceptions" from discharge, are gone.  Who pays them?  No one.  When most creditors lend money, they figure their rate of interest high enough so that any losses from bankruptcy are covered.  By the way, only part of creditors' losses are for bankruptcy.  The big lenders lose far more to fraud, to theft, and to people who never have enough integrity to deal with the situation honestly, and just disappear or hide from the creditors.

Bankruptcy is only for honest people.  If you are a crook, if you are "working under the table", or if you are hiding assets, or don't want to tell the truth, do not go anywhere near a bankruptcy lawyer.  I will not take your case.  I deal only with honest people who have too much debt to repay.  The bankruptcy laws were not written for tax evaders and con artists.  There are very severe penalties for lying on your bankruptcy petition, a copy of your bankruptcy goes to the IRS automatically, and debts incurred by fraud or deception are not dischargeable.

So, contrary to what you might have been told by your bartender, or by someone who knows nothing about it, bankruptcy is an honest law for honest people, passed by the United States Congress to give honest people a way out of debt.

 

Chapter 8  IS BANKRUPTCY BAD?

No.  Owing money you can't pay is bad. Money can be used for good or bad purposes.  People end up without money because of circumstances beyond their control, or for other reasons.  Bankruptcy merely adjusts the debt situation to 0 again.  You start out even.  You get a fresh start, while still keeping the necessities of life.  But the prevailing attitude about bankruptcy is that is "bad."

This is an interesting perception.  The origin of bankruptcy can be found in ancient traditions, as found in the Bible, Deuteronomy 15.1:  "In the 7th year, each creditor shall release his debtors.  This shall be known as The Lord's Release."   In the Old Testament, it was the policy that a debt could exist only 6 years, and should be relaxed or forgiven in the seventh year.   The purpose was to prevent damage to society by allowing a debt to live forever.  The lender was cautioned thereby to lend only as much as the borrower could reasonably be expected to repay. 

There are other Biblical references to debt, such as St. Paul's admonition in Romans 13:8; "Strive to owe no debt, except that debt that binds us to love one another."  I have found nothing in any religion that states that owing money to another is "good."  In the Koran, there is a prohibition against lending money at interest.  In most Moslem countries today, Moslems borrow at no interest from "banks of the faithful."

In modern times, lenders do not follow this idea.  In an era where charge cards are sent out through the mail and applications are "pre-approved", creditors lend money without regard to whether or not the borrower can pay it back.  They cover their losses by charging huge rates of interest.  I have seen contracts with interest rates as high as 53%.  In olden days, this was known as usury.  Technically, any lending of money at interest is known as usury.  But, until modern times, it was the money lender, or usurer, that was bad, not the poor person who had to borrow.

Of course, capitalism could not exist without the practice of lending capital and charging interest.  But bankruptcy laws provide a legitimate, legal, and moral safety valve for the excesses of the credit system.  Now, you don't have to join the French Foreign Legion, disappear to Australia, or blow your brains out, to escape from your creditors. Bankruptcy was so important to the Founding Fathers of the United States, that, when the U.S. Constitution was written in 1787, they directed Congress to make uniform bankruptcy laws.  Article III, Section 8 of the United States Constitution states: "Congress shall make uniform laws relating to Bankruptcy."

Bankruptcy is therefore more fundamental to the United States of America than the Bill of Rights, and such things such as freedom of the press, and freedom from unreasonable searches and seizures.

The United States Bankruptcy laws are part of the Federal Code.  They were passed into law by the United States Congress, our elected Senators and Representatives.  All bankruptcy in the United States is governed by federal law, and the procedures are as much a part of our society as lending money at interest.

After the American Revolution, when the first Continental Congress met in 1787, one of the topics debated was whether or not to have a uniform bankruptcy law.  Many of the American settlers had to run from creditors in England.  They had to leave the country to avoid being thrown into debtor's prison.  Each American colony had different laws relating to collection of debts.  Some had provisions that a person could be jailed for debt, and some, like the colony of Georgia, were havens for debtors and had laws which prevented bad treatment of people who owed money.

There was little disagreement between the Founding Fathers of the United States of America, when it came to having a bankruptcy law.  Freedom from debt was important, and so was the ability to start fresh.  Therefore, in the United States Constitution, Article III, Section 8, we find the provision, "Congress shall make uniform laws relating to bankruptcy."

However, the banking lobby was so strong that each state kept their own bankruptcy laws until 1898, when the U.S. Bankruptcy Code was passed.  It was modified greatly in 1978 to deal with the amazing amount of consumer credit, and is constantly being tinkered with by Congress to balance the interests of those who lend money, and those who borrow it.

It is to the advantage of moneylenders, however, to use public relations techniques to convince the public that bankruptcy is bad, and to make it something that  is bad or evil.  I agree that you should not discharge your debts until it is absolutely necessary, but there is certainly nothing wrong or illegal about it.  No one comes out to your house and takes your clothes.  No one paints a big "B" on the sidewalk in front of your house.  In fact, no one is interested.

If you find yourself with no savings, nothing left over after you pay your rent, mortgage, food and utilities, and still have bills to pay, you should consider taking advantage of the fresh start provisions of the bankruptcy law.  Bankruptcy is like getting a fresh start.  Your debts are forgiven, except those that you want to continue to pay, and you can start saving money and doing things the right way, instead of suffering because of the credit trap.

People come into my office and ask, "What will happen to me if I file a bankruptcy?"  No one ever came in, when I used to be a general practice attorney, and said, "What will happen to me if I don't have get convicted for running a red light?"  They never said, "What will happen to me if I sell my house?"  But people who are being chased by bill collectors sometimes feel that they should not be able to get relief and that they will be punished if they get a fresh start.  They do not realize that a big part of bankruptcy laws is forgiveness.

Nothing will "happen" to you if you file a bankruptcy.  You won't suddenly become rich and famous, or popular, or beautiful or handsome, and, on the other hand, you won't suddenly be miserable and an outcast.  One out of every 22 families will file for some type of bankruptcy relief, on the average, and in some states, the average is higher. 

So, if you have problems with bills, getting the proper advice from a bankruptcy attorney as to whether or not some type of bankruptcy relief would make your life better, should not be looked on as bad.  You should think of it as provision in the Federal laws that was put there by Congress to help people get out of debt. 

Chapter 3

WHAT CAUSES PEOPLE TO HAVE A NEED FOR BANKRUPTCY?

The main causes are loss of jobs, illness, and bad luck.  Other causes are:  using credit cards for regular living expenses, and not paying them off in full every month; car accidents; getting ripped off by used car dealers; co-signing for unreliable people; and divorce.

Let's talk about each of these causes briefly.

Loss of job

If you lose your job, and qualify for unemployment compensation, the amount of money you receive may be less than your regular paycheck.  Sometimes, unemployment compensation runs out, or you do not qualify, and this means that your income is zero.  While you are unemployed, you can file a Chapter 7 case, but you are prohibited from filing under Chapter 13 unless you have a regular source of income.

It may be to your benefit, especially if you usually earn $45,000 yearly, or more, to file a Chapter 7 before you get back to work.  This is because there is an income test in Chapter 7 cases, meaning you can have too much income to do a Chapter 7. This usually comes into play over $45,000, in urban areas like Chicago.  If you are not a higher income person, this timing is not so important.

You may not want to not file a Chapter 7 case unless you are already back to work, for several reasons.  First, your bad luck may not be at an end.  If you are out of work, you probably don't have medical insurance.  If you become ill after you have filed a bankruptcy, and run up a bunch of medical bills, you will have to pay them, because you will have used up your chance to do a bankruptcy already.  Secondly, if you are not working, your money is short, and if you fall behind in your rent or utilities, or your car insurance lapses because you didn't pay it and you wreck your car, you will have already used up your 6 year chance to file a bankruptcy and start fresh.  Thirdly, when you aren't working, no on can garnish your wages, and you probably don't have any savings that they can attach, so what is the point of doing a bankruptcy until you are back to work? 

The reason for doing a bankruptcy is to start fresh.  You cannot start fresh if you are still out of a job.  Once you return to work, a bankruptcy can be filed in as little as one day, to protect you from creditors, so wait until you are back to work to worry about getting rid of your bills.  You may run up some more before that happens!

Illness

Bankruptcy can discharge medical bills not covered by insurance.  Many people are forced to seek relief from medical bills they cannot pay, because either they have no insurance, or their insurance did not pay all the bills.  Medical bills can be devastating.  A discharge in bankruptcy will eliminate all bills up to the date of filing the case.  If you have a chronic illness, or have to get more medical treatment, it may be a good idea to wait until you are sure that you will have no more uninsured medical bills to pay, before you file a bankruptcy.  Your bankruptcy lawyer can advise you on this.

Bad Luck

Most people who work for a living have little or no savings.  They need to spend their paycheck on current expenses, and there is very little to save.  Any excess income is spent on entertainment and on buying consumer goods.  If there is any break in the income, this is a disaster.  Having a car break down, and missing work for a week because of it, can sometimes put a person behind in their bills so that it is impossible to catch up.  Usually, it will take more than a week, though.  Plant closings are an example of bad luck that is forcing many Americans to totally restructure their lives, and makes it impossible to meet their credit obligations.  Loss of a job is a major cause of bankruptcy.

Another variation on the loss of a job, is reduction of pay.  The employee is still working, but the pay has been reduced.  This happens when a company breaks a union, or when employees have to voluntarily accept pay cuts in order to prevent the company from going out of business altogether.  I have had many employees who were making $12 to $18 per hour suffer pay cuts down to $6 to $9 per hour, and this makes it impossible to live at the same standard as when the pay was double.  Something has to go, and especially if there is only one person in the family working, bankruptcy is the only solution to pay cuts.  It enables the family to go back to just paying its regular living expenses, instead of paying for a lot of luxury items on credit.

Illness has already been discussed as another form of bad luck.  Sometimes the bad luck of other people will cause a person to have to get relief from creditors by filing under the bankruptcy laws to discharge their debts.  A recent phenomenon is bankruptcy caused by drug or alcohol use. A person may be married to someone who has bad habits that cause them to default on joint debts, or to use their charge cards to support an irresponsible life style.  The other person is stuck paying for the results of the addiction.  I have seen mothers and fathers who have had to use all their savings, and all their credit, in trying to pay for treatment and defense of their drug addicted children.  Finally, they have spent all their savings, borrowed beyond their credit limit, had their property stolen by the addict child to sell for drug money.  Then they can no longer meet the payments on the loans they have taken to help their child, and bankruptcy is the only alternative to wage garnishments and lawsuits.

Death of a person that was contributing to the household expenses can make it impossible for survivors to pay creditors.  I have seen many people who otherwise had good credit, but had sudden deaths in the family, and had to go further into debt in order to pay the funeral expenses of their loved ones.  Not only the expenses of death of their relatives, but the time off from work, and travel expenses to distant home towns, account for more than a few bankruptcies.

Underemployment

Salaries in the last 10 years have not kept pace with expenses.  The cost of apartments, cars, food, gasoline, and clothing, goes up 10% or more each year, but salaries do not.  The standard of living is actually going down in this country, thanks to things like foreign cars, and "Reaganomics."  Many people, such as steelworkers, have had to take lower paying jobs.  Many factory jobs are not available due to shifts to non-union states, and to foreign countries, so former factory workers may have to take lower paying jobs in retail, just to have a job.  When you have to take a lower paying job, you may have to get rid of your debt with a bankruptcy

Problem: Bill and Sally have been married for 20 years. Bill recently lost his job in middle management, and is now working at half his former salary, driving a limousine. Sally had an operation, and since there was no insurance, owes $8,000 in unpaid medical bills. She used to be a secretary, but knows nothing about computers, and can only work for $6.50 an hour as a receptionist. They can't pay for their credit card debt that used to be easy for them to pay.

The Peter Francis Geraci Chapter 7 or 13 Solution: Underemployment and illness will require Bill and Sally to readjust their life style. A Chapter 7 to get rid of their credit card debt, and avoid lawsuits and garnishments, will help them start fresh, or a Chapter 13 to give them a no interest repayment plan.

Chapter 4 WHAT IS THE PROCEDURE?

 First, go back to our home page, and click on "forms you can use"  tab above.  Print all the forms and fill them out.  Get a free annual credit report by following the tab above. Fill in the debt list, starting with the largest, and listing everything down to the smallest. Do not list current expenses.  Then, call for a free phone mini-consultation 1-888-456-1953, and get a free phone mini-consultation. If we think we can help you, make an appointment for an in-office consultation. Do not try to get anything other than general advice over the telephone. If your car needs a muffler, you a least let the mechanic look at it.  Professionals work the same way.

If you are married, your spouse may be liable on any of your bills, and you should come in together.  You will need the income and expense information on any member of your household, spouse or significant other, whether or not they are filing.

When you come to your first in-office consultation, please leave small children with relatives if possible. This is important, and kids will distract you. Bring all your contracts, mortggage closing documents, payment books and paperwork about debts. Also bring a picture I.D. and Social Security Card.

Write down the name and address of each creditor before you come in.  We can send you a form for this purpose.

If you bring in your bills a good list of your debts and assets, together with all the supporting paperwork and bills, we can give you good advice!

Under Chapter 7, you submit a list of your debts, and a list of your assets.  I only file Chapter 7 cases where your assets are exempt from creditors, and you will keep them. After your attorney files this list, or petition, the Clerk of the U.S. Bankruptcy Court sends notice that you will appear at a "meeting of creditors" to testify about your petition.  That meeting is short, your attorney goes with you, and any creditors that want to ask you questions relating to your debt, can do so.  Typical questions are:  "Do you have a car?, What happened to the merchandise you bought?" and How much is your house worth?"  These are questions you have already answered in your petition, so the "meeting of creditors" is often very short and painless.

Next, under Chapter 7, the creditors have 60 days to object to your discharge in bankruptcy.  Your attorney will be working on any deals, or "reaffirmations", which creditors who financed your house or car or other things will want. Then the Bankruptcy Judge will issue a notice of a hearing on these "reaffirmations", at which time you will appear to state that you want to make these deals, and then, the Court will issue a "Discharge", which states that all dischargeable debts are gone.  Of course, debts which are exempted from discharge will remain, such as certain taxes and student loans.

Under Chapter 13, you propose a repayment plan using your excess income after regular living expenses. You file a similar list of assets and debts, but at the first meeting of creditors, the purpose is to examine your proposed repayment plan.  After that, the Bankruptcy Judge holds a hearing to approve or "confirm" your plan. Then, you simply make the payments until the plan is complete, and then the Court issues a discharge.

So, while there is a lot of work in figuring out what to do, preparing your petition, and dealing with your creditors, almost all of that is done by your attorney.  All you have to do is show up where you are supposed to, and, for Chapter 13 cases, make your payments in full and on time.

Chapter 5   WHEN YOU SHOULD CONSIDER CHAPTER 7 OR CHAPTER 13 PLANS

  ***If three or more of the following apply to you, you should see a bankruptcy lawyer now.

 ***If more than 5 of the following apply to you, you should have already seen us 3 months ago!!!

 _____My debt is over $5000 not including a car or house. 

_____My payments are over 25% of my take home pay. 

_____I am frequently late on my payments. 

_____I pay 20% interest on my debt. 

_____I buy necessary items like food or clothing on credit. 

_____I frequently get cash advances. 

_____I am thinking about getting a loan to pay other loans. 

_____Someone has filed a lawsuit against me. 

_____Collection agencies are calling me. 

_____I am "robbing Peter to pay Paul." 

_____My balances are not going down even though I make payments. 

_____I have been turned down for more credit. 

_____Payments are more than 1 month behind on more than one bill. 

_____My driver's license is suspended because of an accident. 

_____I can't afford car insurance. 

_____My mortgage or rent is always late, or is behind. 

_____We are getting divorced and have too many bills to pay. 

_____I have medical bills over $5000 that are not insured. 

_____There is a garnishment or wage assignment on my check. 

_____I owe income taxes I can't pay now. 

_____My car is worth much less than I owe.                    

_____I have no savings.

If none of these apply to you, congratulations!!  You are living the American Dream.

Chapter 6  WHAT CAN BANKRUPTCY DO FOR YOU?          

____Gets rid of as many bills as possible. 

_____Does not affect car payments if you keep the car and continue payments. 

_____Stops all calls and letters from bill collectors. 

_____Gets rid of cars you don't want. 

_____Stops interest on charge cards. 

_____Clears credit report except for bankruptcy listing. 

_____Lets you get a fresh start.  

_____New credit, including VISA & MASTERCARD, possible.  

_____Helps you catch up on house and car payments. 

_____Lowers interest on furniture and appliance payments. 

_____Stops interest on taxes due. 

_____Solves drivers license suspensions from automobile accidents. 

_____Gets rid of student loans first due more than 5 years ago. 

_____Allows you to start a savings plan immediately. 

_____Stops garnishments and wage assignments. 

_____Never pay another charge bill again. 

_____Effective immediately to stop all calls from collectors. 

_____Stops lawsuits immediately. 

_____Employer doesn't know about it. 

_____It is not "no credit for 7 years."  You can even buy a house during a bankruptcy.       

_____Allows you to start saving for a house.

 _____Money used to pay charges can now pay current expenses.

 _____Keep all your personal belongings and furnishings (up to statutory limit).

 _____Protect your assets from lawsuits and attachments and garnishments.

 _____Get out of leases.

 _____Clear up past due utility bills--only a deposit needed to restart service.

 _____All negative credit reports before bankruptcy are cleared.

 _____Accounts you have listed, but are keeping, are credit references in the future.

Chapter 7 COMMON MISUNDERSTANDINGS ABOUT BANKRUPTCY           

  _____I'll lose my car.  NO.  The only people who lose cars are those who want to give them back.  We can tell you in advance if there is a problem with your car.  Most people get rid of their bills, but keep their car. 

_____I'll lose my house. NO. No one files a bankruptcy to lose anything.  Your attorney calculates your net equity in your house and determines what kind of bankruptcy will help you keep your house while dealing with your other bills.  You don't lose your house. 

_____What about 7 years?  THERE IS NO SUCH THING.  You cannot file another bankruptcy Chapter 7 for 8 years after the last one, but you can start fresh and apply for credit as soon as you are discharged of your debt.  There is no 7 year waiting period to start over. You can apply for new loans even during a bankruptcy. 

____ If I filed Chapter 7 before, Can I file Chapter 13?     Yes.  No waiting 8 yrs

____If I filed Chapter 13 before, Can I file Chapter 7 or another 13?  Yes.  You will need to know the date you filed each case, and whether it was discharged or dismissed.

_____My credit will be bad.  It probably is now. YOU HAVE TO MUCH CREDIT, NOT GOOD CREDIT. Your credit (ability to borrow more money) is probably bad now, because you have too many bills and are only paying interest.  After a bankruptcy, you have no bills, usually, except house or car payments.  You can start to rebuild your credit.  It won't be good again until you have some money saved, and re-establish a good record of repayment.  Everyone who asks this question has already ruined their credit!  But your "credit" is usually better faster if you filed for some relief under the bankruptcy laws and get rid of your bills and save some money in your bank account. 

_____I'm afraid. NO.  Bankruptcy proceedings are very low pressure.  Many times, there is not even any appearance in court. 

_____Everyone will know.  NO.  Except in very small towns, no one cares.  Notice goes to creditors only. 

_____My credit union will hate me. Sometimes.  If you have a co-signer, you will just keep up your same payments.  If you just have a charge card or personal loan from your credit union, you can stop your payroll deduction, and treat them just like any other creditor.  They have no connection to your employment, other than they may rent space at your place of employment. 

_____I'll never get credit again.   NO.  Unfortunately, there are plenty of finance companies ready to lend you more money as soon as you get a fresh start. 

_____I'll never be able to buy a home.  NO.  You certainly can't buy one now, can you?  And if you don't get rid of your debt, you never will be able to save the down payment.  Terms are stricter after a bankruptcy, but plenty of people are accepted for home mortgages after bankruptcies.  

_____The attorney fees are expensive.  NO.  They are often the smallest part of the picture.  The only court cost in a Chapter 7 is $274.00, and we can accept our fees in installments. If you are getting rid of your bills, it will be very easy to pay a lawyer.  Most people open a file with my office with $150 or $200 down, and pay our fees in installments over the next 6 or 8 paychecks. 

_____I'll never get a bank account. NO.  If you have a checking or savings account now, you can keep it.  If you don't have one, you may have a problem because banks are getting real picky about opening accounts for people with no money.  So if you don't have an account now, we suggest you open one BEFORE you file a bankruptcy. 

_____It takes a long time.  MAYBE.  Chapter 13 repayment plans last 3 to 5 years, but Chapter 7 proceedings are generally closed within 6 months, so you can start fresh then. 

_____I can go to just any lawyer and do a bankruptcy.  NO.  Bankruptcy work is generally concentrated among lawyers who do a lot of it, because it requires specialized knowledge.  If the lawyer does not do bankruptcy work every day, he may not want to keep up with the latest developments in the law.  We recommend asking any lawyer you may want to represent you, the questions in our brochure under "QUESTIONS TO ASK YOU LAWYER ABOUT HIS KNOWLEDGE OF BANKRUPTCY" 

_____I will lose everything.  NO.  No one does a bankruptcy to lose anything except their bills.  Your attorney can tell you in advance if the value of your goods is more or less than your allowed exemptions from creditors.  No one will take your sofa or television, and no one comes out to your house.

Chapter 8 WHAT HAPPENS TO MY "CREDIT"?

Your "credit" is a figment of your imagination if you are reading this book. Credit is the ability to borrow money. You probably have maxed out that ability. All you have is debt. You will not have good "credit" until you get out of debt!

Did you know that being in debt is considered worse than filing a bankruptcy in terms of employment and security clearances? We get clients who have been told by their superior officer in the military that they will lose their security clearance if they don't file a bankruptcy. The same with state police, Treasury Department, FBI, the Marines, and other government agencies. They send their people to us to do bankruptcies so that they can get security clearance. People in debt are considered security risks who might sell secrets or co-operate with crooks to get money to pay off their debt.

Employers often require a credit check. Some employers will view a bankruptcy negatively. Can an employer refuse to hire you because you have no debt, after a bankruptcy? Sure. Can an employer fire you because they find out you filed a bankruptcy? Sure. There are goofy employers out there. Most have some common sense. They know that a lot of their employees file bankruptcy, for a variety of reasons. Most understand that banrkuptcy is only for honest people.

We also get a lot of employers who refer their employees to us and even pay the fee to file a bankruptcy. Why? If they have a good employee, they would rather have that employee out of debt, and stop calls at work, and wage garnishments. Credit union employees, however, must reaffirm their debts to their employer credit union to avoid trouble.

You can always arrange to reaffirm a debt if your employer has a problem.

Your FICO or credit score may be actually better after a bankruptcy. Why? You have no debt! Your debt to income ratio is actually better! Also, if you have money in the bank, you can put more money down, or even pay cash for a vehicle. Who needs a FICO score if you have cash!

Buying a house after a Chapter 7 discharge usually requires you to save a 10% to 20% down payment. FHA or VA requires at least a 2 year waiting period so that you can save some money and get stabilized. But you can get a mortgage after a bankruptcy, and you will have no debts other than those that are not dischargable, so you can concentrate on the mortgage.

In Chapter 13, you are prohibited from getting more debt unless you have court permission. We often get clients permission to finance a vehicle that replaces one that died during a Chapter 13.

Chapter 9 WHAT DOES A BANKRUPTCY COST?

The cost is always less that the cost of NOT doing a bankruptcy.  If the cost is more, we advise you not to file for bankruptcy relief.

An obvious cost of a bankruptcy petition is the attorney's fee.  I have found that there is very little difference in attorney's fees.  You can't save more than a couple hundred dollars between lawyers' fees for the same type of case. Some people like cheap doctors, and some people like cheap food.  Some people pick attorneys by a $100 difference in price, not realizing that one deal your attorney makes can save or cost you thousands. 

So, the cheapest lawyer in town is not necessarily the best.  In other words, go for experience, not price, because there is not much difference in fees for consumer bankruptcies, but there is a big difference in the quality of the advice and service.

Creditors target attorneys without much experience for objections to discharge, and for bad reaffirmation deals. At the Law Offices of Peter Francis Geraci, we call that the "scary letter". An attorney for a credit sends out 3 pages of accusations that our client "incurred debt fraudulently" and threatens to object to discharge unless they agree to repay $5,000.00 or so. Our experience counts and can save you thousands.

Here's another problem with the "bargain" attorney. For instance, let's say that 5 years later, a bill collector calls and says you left him off your petition, and he wants to be paid.  Will you be able to call your attorney who did the Chapter 7, for advice, or will the telephone be disconnected?

At the Law Offices of Peter Francis Geraci Chapter 7 our fees are based on the case. It usually works out to between 1% and 10% of your debt. Between $1,000 and $3000. That works out to 10 payments of 100 to 300. And your debt is gone. You stop paying debt you will eliminate, and pay us.

Here's another surprise! All lawyers, with a few exceptions, charge the same for Chapter 13! Most courts set the fee for Chapter 13's. It is about $3,500.00. That fee does not have to be paid in advance. It is part of your Chapter 13 payment. Over 36 months, it adds about $100 a month to the Chapter 13 payment.

Some lawyers advertise a ridiculously low price for Chapter 7, like $450, but never do a case for that amount. When you show up in their office, they put you in a Chapter 13 instead of a Chapter 7.   Lawyers that claim to be “cheap” can often end up costing you more!  Beware of “cheap fee quotes on the phone”.

Another problem with "cheap" lawyers is that they do not know how to do a Chapter 7 using the Means Test for someone making over the "median" income for the zipcode and family size. Just because you make $60,000 a year does not mean you can't file Chapter 7. What it means is that you better see an experience attorney who can tell if you have to do some kind of repayment plan, or if you qualify for Chapter 7 discharge.

The more debt you have, the better deal you get, because there is almost the same amount of work involved in a case with $10,000 in credit, as in a case with $50,000 in credit.  In most Chapter 13 cases, you are saving a lot of money on interest, so the cost is less than paying the creditors at their contract rate of interest.  However, Chapter 7 cases are usually cheaper than Chapter 13 cases in terms of total cost.

Some people focus on the attorney's fee in choosing an attorney.    You could be left with something on your hands that you did not expect.  My office gets calls from about a hundred people a year who have had Chapter 13 or Chapter 7 cases goofed up because they tried to save $100 on attorney fees. I don't have time to talk to them.

We have to worry about our own clients.  Trying to save that $100 can cost you 10 times that or more. So, one cost of a bankruptcy might be getting bad advice or bad representation by your attorney.  The attorney's fee doesn't matter, since you can't save much from one attorney to another.

Another cost of a bankruptcy is the fee in a Chapter 13 that the Chapter 13 trustee charges to take your payment and distribute it to creditors.  This is 7% to 9% of the Chapter 13 payment.  Out of a $100 per month payment, $7 to $9.00 would go to the trustee who handles the money, and the rest to the creditors.

Chapter 10 CAN I FILE WITHOUT MY SPOUSE?

Yes.  Just because you are married, you are not required to file a joint husband and wife case.  Many people have debts that they had before the marriage.  A spouse is not liable for the other spouse's pre-marital debts.

It is a big mistake to think about a bankruptcy without telling your spouse. Have them log on to our website, www.infotapes.com. Even if you are filing alone, the law requires that the income of all household membes has to be disclosed, so your spouse has to be involved. Don't come in without your spouse or significant other!

Marital support and property settlement obligations cannot be discharged.

In community property states, like Wisconsin because it is a community propert state, your bankruptcy leaves your spouse with any debt incurred during the marriage, unless the spouse also files.

However, if you ran up the bills during the marriage, even though your spouse did not sign for the debt, or even know about it, your creditors may be able to collect from your spouse.  Many states have "family expense" laws that make one spouse responsible for the debts of another if the debts were incurred for family purposes.  The theory is that each spouse owes a duty to immediate family members to support them.  Food, clothing, rent, medical bills and household items can be the responsibility of the other spouse.

Therefore, while you can file a case alone, you may have to take into consideration any liability your spouse may have for your debts.  You can protect your spouse from this liability by a joint filing, or, you can pay the debts that your spouse is liable for in a Chapter 13. Then, while you make the Chapter 13 payment, no creditor can bother your spouse.  The same theory applies to co-signed debts.

Chapter 11

DOES MY EMPLOYER KNOW IF I FILE BANKRUPTCY?

Your employer need not know, and probably doesn't care anyway.  Of course, nobody wants their friends, co-workers, or neighbors knowing their financial business.  I have found that people will discuss their love life, their personal habits, and gossip about just about anything, but they will not discuss their personal finances with each other.  Even within families, money is something that people are very secretive about.

In Chapter 13 cases, most employers have to know so they can deduct your Chapter 13 payment from your paycheck and send it to your Trustee to distribute among your creditors.

If you work with other people, you probably don't really know what they are getting paid, or what their rent is, or what they spend their paychecks on.  But, you can figure that everyone is making the average for their job, and has about the same bills and problems that you have, and that some of your co-workers have already filed some type of bankruptcy.  But they like to keep it a secret.  And you can, too.

I have had people who work at the same place meet in my office, not knowing that the other one was a client of mine.  They have been working side by side, leave work with some excuse, and then meet each other in the same bankruptcy lawyer's office!  It is only then that they will admit that they have the same problems.  But if you want to keep your business a secret, chances are that neither your employer nor your co-workers will ever find out.  But, it certainly is not the end of the world if someone does know that you filed a bankruptcy.

Some employers will send their employees to bankruptcy lawyers when creditors start bugging them at work, so that the employees can get rid of their financial problems and concentrate on the job.

If you are really worried about whether or not your employer will "find out", you could always go to personnel and ask, hypothetically, if filing any kind of bankruptcy would have any effect on your job.  I recommend that anyone dealing with financial matters discuss it with their employer if they think the employer would care.  Then you will know before you even see a bankruptcy attorney, and will feel more comfortable.

I had one case recently where a clerical worker was waiting around after her first meeting of creditors in a Chapter 7. When one of my associates asked her why she didn't leave, she said that she just saw her supervisor in his own first meeting of creditors, and was waiting to get a ride back to work!

So, don't worry about who "knows" if you file a bankruptcy case.  It is not as big a deal as it used to be.

If your creditors are calling you at work, your employer may be very happy to know that you have gotten them off your back by filing a bankruptcy.  The filing of a bankruptcy case automatically stops all creditor action, and then no one is going to call you on the job, bug your employer, send out wage assignments or file lawsuits or send the sheriff out to deliver lawsuit papers to you on your job.

I represent a lot of employees of big banks, including some who have charge cards issued by the bank they work for.  It used to be common in the employment manual for these banks to see a statement to the effect that filing a bankruptcy by an employee was cause for dismissal. This is not true today, and in fact, that is illegal. I have never seen an instance of an employer harassing an employee because they filed a bankruptcy, even if the employee owed money to a bank they worked for. Of course, if you work for a small company and borrowed a thousand from your boss last week, I would not suggest that your boss would be happy if you did not pay it back, but I have not seen a problem at work, and I represent people in over 1000 personal bankruptcies a year.

Problem: Tanya Wilson works for a bank. She was divorced last year, and has run up $8000 on credit cards, and now someone stole her car, and she had no insurance, and still has to pay the car loan. Collectors are starting to call her at work, and the finance company has sent her a notice of wage assignment. She is worried that her supervisor will think that she is unreliable. She is also worried because she has her checking account at the bank, and has $1800 on a MasterCard at the bank.

The Peter Francis Geraci Chapter 7 or 13 Solution: If she files for bankruptcy, the creditors cannot ever contact her again. No one can contact her job, and the supervisor will not know she has money problems. Best of all, after she discharges her debt, she won't have any money problems, because she just got a raise and can pay her regular living expenses and start fresh by saving money in her savings account.

However, since she owes money to the bank she works at, she wonders if she should pay it back. Generally, we find that a decision to lend money by a credit card company is not based upon the employee working for the bank, but is made on the same basis as is used to give credit cards to the public.

Just because you work for the bank doesn't mean your employment is affected if you file a bankruptcy. It has been my experience that nothing happens to the employee in this situation, simply because the credit card division does not report bankruptcies to the personnel department. That would be a violation of Federal Bankruptcy law, which prohibits discrimination in employment because a person filed a bankruptcy.

Chapter 12 DO I LOSE ANYTHING?  

Not if you list all assets and we analyze it before you file! We tell you in advance if you would lose anything, or have too many assets to do a Chapter 7.  You probably will lose things if you don't do a bankruptcy, since bankruptcy can stop all creditor action against you.  You will keep your belongings, car, house, pension and tools.  State law may govern what you can keep, however, and your bankruptcy attorney may need a list of your major assets.

In a bankruptcy, you can keep certain things free from creditors.  You can keep an interest in a house, car, and in money or household goods.  During your initial interview, your attorney will determine if you would lose anything.

Per person property you can keep, if you are in title to it:

Illinois:  $15,000 in home equity or injury proceeds, $4000 in personal property  

Indiana:   $15,000 in home equity , NO injury proceeds, $8,000 in property, no cash

Wisconsin:  $40,000 in home equity total; $8,000 in personal property

Michigan: $30,000.00 in home equity, $3,000 in personal property

All states:  Pensions, IRA's, workers compensation claims.

This is not a complete list, but it shows you can keep home, pension, vehicles and household goods in most cases.  Your attorney must analyze this carefully.

Generally, you keep all your belongings, and get rid of your bills.  No one comes to your house and takes anything.  You keep your house, car, and clothing and furniture.  No one does a bankruptcy to lose anything but their bills.  If you have too much money in the bank, or your property is worth too much, or you have too much disposable income, we may advise you to pay your bills in installments under Chapter 13 in order to avoid losing anything.

You don't have to close your checking account, unless you owe your bank money.  You generally do not lose pensions, although you need specific advice from your lawyer on that.  E.S.O.P plans are different from pensions.

Of course, if you would like to get rid of a car that doesn't run, or one you owe too much money on, you are free to give it back to the creditor.  That is up to you.  If you keep a house or car you owe money on, you have to keep making the payments.

You can also voluntarily pay creditors, such as your relatives, or credit unions, even if they have no collateral.

In most states , proceeds from life insurance and workers compensation settlements are exempt, and a portion of an injury settlement can be kept free of creditors. If you have a claim against someone, be sure to disclose it before filing, or you may be barred from pursuing it.

Each case is different, and that is another good reason why most attorneys want you to answer a lot of questions, and give them as much information as possible, so that they can advise you properly.

I can tell you from experience, though, that we do not file bankruptcy cases if you are going to "lose" anything.  That is a big misconception about bankruptcy. 

Chapter 13 DOES BANKRUPTCY "RUIN MY CREDIT?"

You don't have good credit, you have good debt!  Bankruptcy does not generally ruin your credit more than it is already.  Many people say to me, "I'm current on all my cards.  I have good credit."  Then I find out that they have been getting cash advances on one card and using that money to pay the other charge cards.  That is called "Robbing Peter to pay Paul."  That is not good credit.  That is borrowing money when you don't have the ability to repay it.  If you are doing that, you don't have good credit.

Credit is the ability to borrow money.  Lenders look at several things about you if you want to borrow money. First, they look at your ability to repay it.  If you have a lot of bills to pay now, you probably can't afford to borrow any more, because you won't be able to repay it.

Second, they look at your past history of repayment.  If you have been reported slow-pay, or have lawsuits, garnishments or repossessions, you already have ruined your credit history.  Getting rid of your bills in a bankruptcy may actually improve your situation.  You will have no bills to pay, or maybe just one or two.  You will then be able to try to save a little money. Also, you can't file another bankruptcy until six years have passed.  Many lenders will allow you to re-establish credit, because now you have a better ability to repay.

The third main factor that a lender looks at is the security or collateral given for the loan.  You may need more money down than in the past.

If you are contemplating bankruptcy, you have probably received charge cards in the mail, and bought things with no money down.  After a bankruptcy, that easy credit will be harder to obtain.  You can get a charge card by giving a $400 or more savings account with the issuing bank, so that if you do not pay the charge card, they can deduct from your bank account.

Many clients are able to buy a home within a few years after filing a bankruptcy or even during a bankruptcy.  How do I know?  Every week an old client calls me and asks for proof that their bankruptcy got rid of their old bills, so they can give it to their mortgage company.  Mortgage companies want to know that people buying houses don't have creditors chasing them, because those creditors can put liens on the house.  Also, if you have a lot of bills to pay, you probably can't afford house payments.  Filing bankruptcy may be the first step to buying a house.

Problem: Joan & Marty have a house worth $105,00, with a $90,000 mortgage, a paid-off 1983 Olds worth $2500, and the normal household furnishings, all 3 or 4 years old. They have $22,000 worth of charge cards, and can't keep up the payments because their real estate taxes and insurance just went up. Their monthly expenses, with the mortgage, equal their income, before they start paying the charge cards.

The Peter Francis Geraci Chapter 7 or 13 Solution: Under Illinois law, for a married couple, $15,000 equity in your house is exempt from creditors, as well as $4000 worth of other property, including cash or furnishings, and a $2400 interest in a car. Joan & Marty can discharge all their bills, keep their car and furnishings, and keep their house, just paying mortgage and taxes.

Chapter 14 CAN I KEEP BILLS OFF MY BANKRUPTCY?

No, you must list all debts, and all assets.  If you leave a debt off, you will have to pay it.  If you do it deliberately, you will be guilty of perjury.  Same with property or any interest in any kind of asset.  List everything, or lose it and risk getting indicted.

 All creditors that are owed money must be listed on the bankruptcy petition.  If you have a car loan, and you want to keep the car, the car lender must be notified, and an agreement must be made that the debt will survive the bankruptcy.  This must be signed by your attorney and the creditor, and yourself.  If you lie on your petition, and don't list the car loan, you are committing perjury and that is a crime.  Also, if the car lender finds out about it later, they may be able to repossess the car just because you didn't tell them about the bankruptcy.

You needn't list current expenses such as your rent and utilities.  Of course, if you are being evicted or are seriously behind in your utilities, they should be listed as creditors.  Then, your utility bill can be put to zero, and you can get utility service started again.  If you want to get out of your lease, you can do it by filing a bankruptcy.  The landlord must be listed for informational purposes.

Some people like to keep a charge card just for identification, to cash checks, or to use when traveling.  You cannot fail to list a credit card unless you have no balance due.  If the card has a 0 balance, then the issuer is not a creditor, and need not be listed.  You will have to disclose on your bankruptcy petition that you have paid creditors who are not listed as creditors, if you have paid off a balance within the last year.

Even if a card has a 0 balance, creditors check your social security number and can cancel the card.  American Express, J.C. Penney and many others do it all the time.

List all debts, even if you are going to pay some of them.  It is very easy to send money to a listed creditor, and agree that their debt will survive the bankruptcy, if you want.  It is a very bad practice to lie on a bankruptcy petition and fail to disclose debts or assets. 

So, although every creditor must be listed and notified, you can pay the ones you want, after a Chapter 7 proceeding, and get rid of the others.   In a Chapter 13, everyone you owe must be paid through the Chapter 13 plan, unless you have Court permission otherwise.

Problem: Bob owes his grandmother $5,000, and wants to pay her. He doesn't want her to know about the bankruptcy, and his other $10,000 in bills. He also wants to keep his 88 Chevy, on which his payment is $342 per month, since it is up to date, and worth more than he owes on it. He is afraid that if he tells grandma he's filing bankruptcy, she won't give him any more money, and he doesn't want to lose his car.

The Peter Francis Geraci Chapter 7 or 13 Solution: Both grandma and the car finance company must be listed as creditors in a bankruptcy. In a Chapter 13, they both will be paid by the Chapter 13 trustee. In a Chapter 7, Bob will get rid of all his debt except the car, since he wants to keep paying on it. The car finance company has to know about the bankruptcy, and Bob must sign documents that say the debt on the car will not be discharged. In a Chapter 7, grandma's debt is discharged, but Bob is free to pay her if he wants. Grandma has to know about it, and Bob should tell her. She probably knows he's in financial trouble anyway, and will appreciate his honesty.

Chapter 15

BILLS OR PROPERTY IN SOMEONE ELSE'S NAME OR POSSESSION

Several interesting complications arise when people mix up their finances with others.  You must disclose all such debts or assets.

When you have asked someone else to run up a bill, and promised to pay for it, you are a stranger to the creditor.  The creditor knows of the existence of the person who got the credit, but has no idea of your promise.  Therefore, you are not a debtor, except for your debt to the other person.  The creditor has no obligation or demand on you, and therefore, the debt cannot be dealt with by your Chapter 7 or Chapter 13.  You should list your obligation to the other person, however.

In a Chapter 7, you can discharge your promise or debt to repay the other person's loan, by simply listing the person on your petition.  In a Chapter 13, especially if you are in possession of property that was purchased by the other person, you can deal with that property by proposing to pay the other person for it. Of course, if that person does not use the money to pay the creditor they bought it from, you may find that you will lose the property anyway, since the creditor retains its security interest in the property until it is paid.

Sometimes people transfer property to another person, or give another person money to buy something for them, either because they have no ability to borrow themselves, or because they wish to hide their ownership.  This must be disclosed on your bankruptcy petition.

Often, it makes no difference if you disclose such transfers, but it is a crime to conceal your ownership in property held in another's name when you are asking for bankruptcy relief.  Honesty is the policy.  Again, you are a stranger to the creditor, but since you supplied the money to the person who bought it, the other person may owe you money, and if the other person is honest, will say that it is not his property, but yours. This most often arises with cars, where a person is driving and paying insurance on a car, but the plates, title and loan are in a relative's name.  Most likely, we cannot help you with that situation either, but it must be disclosed anyway.

Chapter 16 WHAT ABOUT THE CREDIT UNION?

Danger here!  Credit unions take a lien on all property you list for any loan.  This is called "cross-collateralization".  Therefore, if you have a car loan and credit card, you may have to pay off both loans to get the car title, even if you file bankruptcy on the credit card and want to pay the car loan.  

Credit unions often have an arrangement with the employer to use the employer's name.  The company you work for, however, does not generally own the credit union.  Credit unions are owned by the members.  Each member must buy shares, and then is entitled, subject to an approved credit application, to borrow money from the credit union.  Credit unions usually make loans at less interest than banks or finance companies.

Although getting a lower interest loan is a benefit, credit unions have several practices that can lead to financial trouble for a borrower.  First, they want a payment on their loan every time the employee gets paid, and they usually want a larger monthly payment than other lenders.  This gets the loan paid quicker, and results in less interest payments, but puts a greater burden on the borrower to pay the loan back quickly.

Since most people are borrowing from credit unions for necessities, they don't have any extra money, so the higher payment to the credit union often makes it difficult to make payments on other bills.  Credit unions also like to get co-signers. If your co-signer is a relative or co-worker, you may want to repay the loan.

Another practice of credit unions is to take a security interest in pension fund distributions. In some states, and under the Federal ERISA law, that may be illegal.  If there is such a security interest, the bankruptcy will not void it, unless you specifically provide your attorney with the documents showing that there is a security interest in your pension, and pay the attorney for the extra work necessary to avoid that security interest.

You will need special advice from your attorney regarding credit union loans.  There is nothing wrong with agreeing that your credit union can deduction can continue, and that the loan can be paid in full, but you should approach that issue as a business decision, not an emotional one.

Example: Mabel owes the credit union $4500. They have her shares of $550 for collateral, and they also made her get 3 co-signers before they would give her the loan. Her friend Jean owes the same credit union $5000. Jean has no savings in the credit union, and no co-signers.

The Peter Francis Geraci Chapter 7 or 13 Solution: Mabel is going to let the credit union keep deducting after her Chapter 7. Although her personal liability will be wiped out, she will let them take the regular payment to protect the co-signers.

Jean will go to the credit union with her bankruptcy papers and tell them to stop deducting. This will have no effect on her job, and her paycheck will be a lot bigger.

In a Chapter 13, if Mabel wanted to pay the credit union, the credit union would be paid by the Chapter 13 trustee along with the rest of the creditors, usually. The creditor union must be treated the same as any other creditor, and can be either paid, or not paid. Because Mabel's Chapter 13 payment pays the co-signer loan ahead of unsecured creditors, any co-signer is protected, and no separate payroll deduction is permitted. That puts more money in Mabel's check.

Chapter 17 CO-SIGNERS

Whenever a lender wants a co-signer, they don't trust the person that wants the loan.  Therefore, someone has to agree that if the person who is getting the money does not pay, that the co-signer will make the debt good, and take up the payments.

If you are the person who signed to pay if your friend or relative didn't you may complain if you are called upon to pay the loan that your friend or relative got.  In fact, it may push you over the financial edge.

Therefore, if you have a lot of bills, and now have a problem because of a co-signer, you will want to include that co-signed loan in your list of bills when you come in for your first interview.

If you co-signed, you probably did not want to pay the other person's loan.  In a Chapter 7, you will discharge your liability for the loan.  In a Chapter 13, you can set up a special class for co-signer loans, and pay them or not pay them, as you wish.

If other people co-signed for you, you may want to protect them.  In a Chapter 7, you will probably want to pay loans that other people co-signed for you on, so that you are protecting your co-signers.  Just keep on paying those loans, despite your Chapter 7, if you want to protect your co-signers.

In a Chapter 13, if you want to protect your co-signers, you can set up a special class of creditors for co-signer loans, and propose to pay the co-signer loans ahead of other loans.

Chapter 18  WHAT ABOUT MY CAR?

Bankruptcy can be used to get rid of bad car deals, or help you to pay for a car you want to keep.  You can buy a car on credit after filing bankruptcy, so you may want to dump a gas guzzler or high payment vehicle and get a cheaper one.

If you are like most people, your car is financed.  The U.S. Department of Commerce estimates that, in 1991, the average cost of owning a car that is financed is over $425.00 per month.  The cost of owning a car includes the monthly payment, the interest lost on the down payment or cash value of the trade-in, repairs and maintenance, depreciation (the amount the car goes down in value every month), license and taxes, as well as gasoline and oil.  I have seen more than a few people who are paying more for their car than for their rent.  If they were living in their cars, that would be a good idea!

Many people are suffering from "car fever" when they buy a car.  Dealers have relationships with finance companies that allow them to finance any kind of deal.  If you want to finance a car with a bank or a finance company that has no relationship with the dealer, the first thing a loan officer will do is look up the car in a book which lists the value of the car.  There are several services which provide such information.  Most finance companies or banks that have no continuing relationship with a car dealer will only loan you 70 to 80% of the average retail price for the same type of car listed in the book.  If you are paying more than the average retail price, you will be able to get a loan based on the average price similar cars are usually sold for, not on 75% of what you want to pay.

What does this mean to the average car buyer?  It means that if you are paying too much more than the usual price every one else pays for similar cars, the "average retail price", you will have to put more money down.  However, finance companies that have regular relationships or agreements with car dealers will lend you almost any amount, regardless of how much the car is really worth.  In other words, they will finance you for the price the dealer got you to pay, not what the car is really worth.

When that happens, often the car is worth less than you owe on it.  If the difference between what you owe, and what you could sell the car for, is very great, you may want to give the car back to the finance company.  Then, you won't owe anything, and you can start fresh and get another car.

Can you get another car, if you have filed a bankruptcy?  This depends on you. If you are filing a bankruptcy, your credit is probably bad anyway right now.  After you discharge your debts, you won't have any payments to make, so you probably will be able to afford reasonable car payments.  If you put some money down, many dealers will finance you again.  Or, you can buy a used car for cash. Or, for what you would spend on a car, you can take cabs.  The trick is to avoid getting into trouble on another car. 

If your car payments are reasonable, and you owe less than the car is worth, or about the same, and you are up to date in your payments, and the car is running good, you will probable want to keep your car even though you are getting rid of the rest of your bills.  This is absolutely no problem.  The finance company will be happy to agree, generally, that your debt will survive the bankruptcy.  This is done in writing, and is called a reaffirmation.

If you are behind in your payments, or don't have car insurance, finance companies will seldom let you keep the car unless you cure those problems.  This is true even when you are not doing a bankruptcy.

Many people come in to do a bankruptcy after the finance company has repossessed the car because they didn't make the payments, or didn't keep it insured.  Sometimes I can get the car returned if they bring the payments up to date, and get insurance, but most of the time they are better off giving up the car.

In a situation where the car has already been repossessed, if you owe less than the car is worth, it might be worthwhile investigating filing a Chapter 13 debt repayment plan.  This is a repayment bankruptcy, and the payments can be restructured if your budget allows it.  Of course, Chapter 13 plans, in which you pay a payment to a court-appointed trustee who sends it to your creditors, are always more expensive than Chapter 7 bankruptcies.

If you have a car that you own, and it is not financed, you need to have me look at the exemptions allowed by law, to see if you could still file a bankruptcy and keep the car, free and clear of any claims of creditors.  In Illinois, if the car is your main asset, and you own it free and clear, and you are the only one on the title, we need to see if you can keep it without having to do a Chapter 13. This may not be a problem, however.  I do many Chapter 7 bankruptcies, especially for married people who own vehicles in joint tenancy, where they have cars and keep them free and clear in a bankruptcy.  It all depends on your individual situation, and a competent bankruptcy attorney can advise you about this.

Example: Ted wrecked his car without insurance. The accident was his fault, and the other driver is suing him. He still owes $6,000 on his car note, and now the car finance company wants to be paid. His brother Bill has a 1989 Camaro. When he bought it, he traded in another car that was not paid off, and his car note now includes money he owed on the old car, as well as what he owes on the new car. Bill's car ote is $457 per month. He is current, but wants to give the car back and get a "beater" so he can save some money.

Their friend Ralph is up to date in his car payments, has insurance, but has a lot of medical bills and credit cards. He wants to keep his car and get rid of the rest of his debt.

The Peter Francis Geraci Chapter 7 or 13 Solution: Ted files a bankruptcy and lists the other driver and their insurance company, as well as his own car finance company. Any debts to them will be discharged. He can save up some money, go buy another car, and no one can sue him for the accident, so he won't lose his driver's license.

His brother Bill surrenders his car, and doesn't have to pay a nickel more. He now has no bills, and can save up to buy another car.

Ralph is getting rid of his hospital bills and his credit card debt, so now he can afford his car payment. It is up to date, and the car is insured, so he can keep his car even though he is getting rid of other debt.

 

Chapter 19 WHAT ABOUT MY HOUSE?

Bankruptcy can be used to catch up house payments, or to get rid of a house you don't want, or to get rid of other bills so you have enough money to pay your house payment. You can keep your house, as long as you pay the mortgage, and depending on the equity, you may qualify for either Chapter 7 or 13. If you own your

All debts have to be listed on any bankruptcy petition, whether or not you intend to pay them or not.  If you are up to date in your house payments, and your attorney has determined that creditors will not be able to attach your interest in your house, you may have decided to get a fresh start by discharging your other bills under Chapter 7, while you keep your house payments up to date.  In fact, the whole reason you may be filing under Chapter 7 is so that you can get rid of your other bills, and keep your house payments current.

As long as the market value of your house, less cost of selling it, is less than your mortgage totals plus your exempt homestead equity, you should have no problem keeping your house in a Chapter 7.  No one ever loses their house by mistake, in that situation, by filing a bankruptcy.  Bankruptcies often save houses, by getting rid of other bills that prevent you from keeping your house payment up to date.  Equity in your house over the amount of the mortgage is often exempt from creditors under local homestead exemption laws. 

Some people don't want to keep their house.  In that case, they probably already are hopelessly behind, and it would be too difficult to catch up.  Chapter 7 will not help you catch up. We only file Chapter 7 cases when you are pretty much current on your house, or if you want to give it up, and not have the bank sue for any personal liability.  If you are behind, and want to keep your house, we will advise you whether or not you can qualify for a Chapter 13 Debt Repayment Plan.

Chapter 13 of the Bankruptcy Code provides rules for catching up past due mortgage payments to prevent foreclosure.  If your reason for thinking about contacting a bankruptcy lawyer is to save a house that has past due mortgage payments, you must do it as soon as possible, so that a foreclosure is not filed, and the house is not sold in a sheriff sale. There are very specific and complex rules depending on at what stage of a foreclosure you are at.  The sooner you act, the better.  Waiting until you are 10 or 12 payments behind is almost always fatal.  Remember, when you skip a mortgage payment, the mortgage balance usually goes up, because the interest that you would have paid that month isn't paid, and is added to your balance.  In addition, the money you would have paid for your tax and insurance escrow isn't being paid, so your insurance may be cancelled and your real estate taxes may be delinquent.

If your house is worth a lot of money, or even if it is only worth more than your mortgage plus homestead exemption, you may not be able to file a Chapter 7 and still keep the house.  You may have to do a Chapter 13 repayment plan to protect your equity in the house.  It is necessary to bring in a recent appraisal if you want competent advice from your attorney.  You do not need an expensive appraisal.  You may already have one if you have recently refinanced the house, or if you recently purchased it.  A letter appraisal from a local real estate agent will do.  It should be realistic, and should not be for purposes of listing the house.  It should be a "quick sale" evaluation based on recent sales in the area, and current market conditions.  If I have an appraisal, I can quickly tell my client what I can and cannot do to save their house, and get rid of other bills.

 

Chapter 20 WHEN DO CREDITORS STOP BOTHERING ME?

The minute the bankruptcy case is filed. In the meantime, don't talk to them, leave them on the answering machine. If they call you at work, get their info, give them your home number, and say "My employer does not allow calls at work, please call me at home." These are magic words under the Fair Debt Collection Practices Act that require them to stop calling you at work. You can tell them that!

After we have prepared a petition listing your debts and assets, and prepared answers to required questions about your personal actions in relation to money, the bankruptcy petition is filed with the Clerk of the Bankruptcy Court. Of course, your attorney fee must be paid in full, unless you have made other arrangements.  After you have paid your attorney, you pay the filing fee, or court cost. It is about $300.00 (When I started practicing bankruptcy law, in 1974, the court cost was only $30.00.) This must be paid in the form of a money order or cashier check payable to the Clerk of U.S. Bankruptcy Court, since the Clerk does not take personal checks.

After the Clerk has stamped a bankruptcy case number, or docket number, on the petition, notice can be sent out to all creditors that you are under the jurisdiction of the Bankruptcy Court.  Then, Federal law requires that all collection action stop. 

After you have made up your mind what to do, I generally advise you to stop paying all creditors except the ones which will survive a bankruptcy.  If you are having trouble with bill payments, you should get a consultation with an experienced bankruptcy attorney before you make more payments to creditors.  You may be wasting your money right now by making minimum payments on bills that don't go down after you make the payment, or you may be paying money to creditors that you will get rid of, instead of creditors that you must pay.         

It is important to understand that thinking about filing bankruptcy, or even talking about it, is not the same as giving money to an attorney and actually having a docket number assigned by the Clerk of the U.S. Bankruptcy Court. Even giving money to an attorney is not enough. The case actually has to be filed with the Clerk. It is then that the provisions of the Bankruptcy Code which protect you from creditor harassment, bill collectors, wage assignments and lawsuits come into effect. 

Those provisions are briefly known as the "automatic stay" provisions.  This protection is know as the automatic stay, because the Bankruptcy Code provides that all creditor action is automatically stopped, or stayed, when a petition is filed with the Clerk of the U.S. Bankruptcy Court.  This "automatic stay" is truly automatic, and even if a creditor does not know a bankruptcy case has been filed, you are protected from their actions. 

For instance, if money is taken out of our paycheck by a creditor after the date a bankruptcy petition has been filed, it must be put back as soon as you notify your payroll department that you were under the protection of the automatic stay provisions of the Bankruptcy Code at the time the money was deducted.  

I routinely provide my clients with notices entitled "Automatic Stay", which state the language of the Code.  I mail them to the client when the case is filed, so that the client can notify payroll, if necessary, or tell the docket number to any bill collector who calls.  Sometimes clients get these in the mail, and even though we have discussed it thoroughly, they call up and say, "What are all these papers?  Do you mean I have to notify my creditors?  What am I paying you for?

I then explain again that this is for your benefit, so that you quickly have something in your hand to give to anyone who wants proof that you have filed a bankruptcy petition.  Creditors and payroll departments will immediately stop any action if they know definitely that a bankruptcy has been filed.

Problem: Keith has a wage assignment from a finance company, and all his creditor cards are behind and bill collectors are calling him constantly.

The Peter Francis Geraci Chapter 7 or 13 Solution: The filing of any bankruptcy petition stops all creditor action. When Keith's bankruptcy case is filed, the wage assignment has to stop, and no one can even call him on the telephone.

Chapter 21 CROSS-COLLATERALIZATION AGREEMENTS

When you open any kind of account at a bank or savings institution, or credit union, they will have you sign an agreement which gives them a right to take money out of any account you have, if you don't pay them on a loan as scheduled.

This means that if a bank repossesses a car and sells it for less than the remaining loan balance, they can take the money in your accounts at that bank without any warning.  If you are a joint owner of an account with a relative, they can offset their loss on your debt by taking money from your joint account with your relative.

In a bankruptcy situation, regardless of whether or not you are filing a Chapter 7 or Chapter 13, or whether or not you are paying back a loan or getting rid of it, I recommend that you cease using that account, and move any deposits to another bank before filing your case.  This prevents trouble, because the bank that has the loan no longer has any deposits of yours to take an offset from.

When your paycheck is directly deposited, you should change the deposit instructions with your payroll deposit.  If you have a checking account, simply let the checks you have written go through, but do not put any more money in the account, and file your bankruptcy after your checks have cleared and the balance is as close to 0 as you can get it.  You can start using your new checking account without fear of offsets, because you have no loans at the new bank.  

Remember that cross-collateralization agreements extend to accounts on which you are a joint tenant.  If your mother put you as a joint tenant on her account for convenience, the bank may offset your default against that joint account, even though it is your mother's money and she had nothing to do with your loan, because that money is half yours by law.  (See the Chapter on "Joint Accounts with Parents.)

Problem: John has a savings deduction of $75 per payday going to a credit union he owes $2000 on a personal loan. He also has a checking account with the credit union. In his bankruptcy, he will be discharging his obligation on the loan. But, he signed a cross-collateralization and security agreement when he made the loan.

The Peter Francis Geraci Chapter 7 or 13 Solution: John has already given the credit union a secured interest in his savings, so he will lose what savings he has in an offset, but he certainly doesn't want the credit union to get his current paycheck. John opens a checking account at a bank near his house, changes his direct deposit instructions at payroll, and also instructs his payroll department in writing to stop automatically deducting $75.00 per payday for the credit union. He takes care of this before filing his bankruptcy.

Chapter 22 JOINT ACCOUNTS WITH PARENTS

Educational Savings Accounts are exempt from creditor attachment, as long as you have not put more than $5,000 per year, with certain other limitations.  

I see quite a few clients whose names are on accounts that belong to their parents.  They tell me that it is just for convenience, that the money belongs to the parent, and that the parent reports the interest on the parents return under the parent's social security number.  The proper way to set up such a "convenience" account, where the child is only authorized to make withdrawals in case of emergency, is to make the child an authorized signer for withdrawals, not to put the account in joint tenancy with the child.

Similarly, many such joint accounts are intended to pass to the child on the death of the parent.  It is just as easy to set up a payable on death account, instead of a joint account, but people do not seem to do it that way.  A joint account transfers actual ownership.  Each joint owner can withdraw the money without the consent of the other joint tenant.

In a bankruptcy, any money that is in joint tenancy accounts may be considered to be an asset of the bankruptcy estate.  That is not a good result.  I advise people to change the way the account is held, so that it correctly reflects the intention of the parent and child, without giving the child a present ownership interest. Of course, any changes must be disclosed on your bankruptcy petition, but, since you can prove that none of the money is yours, I have never had a problem with this.

The only reason most of these accounts are set up wrong is because bank employees are often lazy and stupid in these matters.  They make no inquiry about what the depositor intends.  They just want to get the money in their bank, and don't care how the account is set up.  Therefore, if you are contemplating a bankruptcy, and have a joint account with a parent simply for convenience, or as an estate planning device in the event of the death of the parent, it is a good idea to change to account so that it is not a joint account, but simply an authorized signatory or payable on death account.  This change on the ownership of the account has to be disclosed to the bankruptcy court and the creditors, but since it is not an actual transfer of assets, but a correction of the account title, it is not viewed as hiding assets from creditors, since the assets were the parent's to begin with. 

On the other hand, as long as there was no gift-giving intent on the part of the parent, the funds are not viewed as belonging to the child in many cases, especially when it is easily provable that all the funds were the sole property of the parent before the account was set up, so many times in a bankruptcy case we disclose that there is such an account, but that the child is really holding the funds of the parent.

If a Bankruptcy Court should take the position that such an account actually belonged to the son or daughter, it might prevent discharge of debts without giving up that account to the bankruptcy trustee to distribute it to the creditors.  Mom certainly would not like that.  I have never had it happen, but it is one of those problem areas that we like to think about.  Banks certainly give people a lot of bad advice in that area.  We can file a Chapter 13 debt repayment plan to protect such accounts.  I have had people come in to do that because they are on the mother's savings account, and a creditor is about to garnish it.  The filing of a Chapter 13 will protect such joint accounts.

Problem: Cynthia needs to file a Chapter 7 bankruptcy, because she has $15,000 in credit card debt and can no longer meet the minimum payments. She is listed as a joint tenant on her parent's certificate of deposit in the amount of $10,000, because her father was using the joint tenancy as a device to pass the account to her in case of his death.

The Peter Francis Geraci Chapter 7 or 13 Solution: Since none of the money was intended to be hers, and the way the account was set up was incorrect, Cynthia files her Chapter 7 and discloses that she is holding her parents' certificate in her name as a joint tenant, but it is their property. Her bankruptcy attorney has Cynthia sign a disclaimer that, in the event someone wants to say that the deposit belongs to Cynthia and should be distributed to creditors, Cynthia may incur more attorney fees to defend it, or has the option of converting her Chapter 7 to a Chapter 13 and paying a sum equal to 1/3 of the deposit amount to the creditors. That, however, is very unlikely.

Chapter 23 WHEN DO I STOP PAYING MY CREDITORS?

Generally, you will stop paying all other creditors, such as charge cards, as soon as you make the decision to file a bankruptcy petition.  Whether you are doing a Chapter 7 or a Chapter 13, there are some bills you will always want to pay.  These are personal expenses, such as rent, food, school tuition and current utilities.

In a Chapter 7 bankruptcy, generally the only bills other than regular living expenses that you will pay are for mortgages or cars that you want to keep, or for non-dischargeable debts such as government insured student loans or loans or grants from non-profit schools, first due less than 7 years ago. You may also want to pay collateralized loans, such as furniture and electronics purchases. 

In a Chapter 13 debt repayment plan, you are proposing to pay your creditors by making one payment to the Chapter 13 trustee, who then divides it up between the creditors.  Therefore, you pay no one individually, or "outside the plan," because your Chapter 13 payment pays them.  The only creditor that is generally paid "outside" the Chapter 13 Plan is a mortgage on real estate.

If I am representing you, I will advise you on which creditors to continue paying, and which not to.  Generally, you never continue paying charge cards and similar debts, but this is a complicated area and is best left to your attorney to advise you.

Problem: Lou and Wendy can pay their car payment this month, but due to higher rent, can't pay their credit cards, or the IRS taxes due for Lou's side jobs from last year.

The Peter Francis Geraci Chapter 7 or 13 Solution: Perhaps they can file a Chapter 13, which may pay all their bills for the same amount as their car payment; the car will be paid for by the Chapter 13 payment, fi