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What is Bankruptcy Counseling?

For most individuals, whether they should file for bankruptcy is one of the most serious financial decisions they can make. Consequently, that decision should be made only after knowing what the bankruptcy process entails, the consequences of filing for bankruptcy, and the available alternatives to filing for bankruptcy. The pre-filing counseling session will enable consumers to fully understand the potential advantages, disadvantages of, and alternatives to, declaring bankruptcy before taking action. The NFCC believes that helping consumers to fully understand the implications of bankruptcy and the possible alternatives will enable them to make an informed decision about whether bankruptcy is the best option for their specific financial circumstances. Individuals filing for bankruptcy under Chapter 7 or Chapter 13, will be required to participate in a pre-bankruptcy filing counseling session with an approved nonprofit budget and credit counseling agency within six months of filing. The agency providing the session must be approved by the Executive Office for U.S. Trustees (EOUST). (Agencies located in North Carolina or Alabama must be approved by the local Bankruptcy Administrator). Consumers who receive pre-filing counseling with an NFCC member agency can expect:

  • Estimated length: A counseling session of approximately 90 minutes.
  • Content: The session will include an overview of the bankruptcy process; a discussion of possible alternatives to bankruptcy, including their advantages and disadvantages; and a personalized budget analysis. The session also will include a discussion of the circumstances that led the consumer into financial difficulty.
  • Format: Counseling can be face-to-face, over the phone, or via Internet.
Consumers will receive a certificate indicating that they completed the counseling session. Should they decide to file for bankruptcy, they will have to include the certificate in the filing with their bankruptcy petition. Before a bankruptcy is finalized and debts can be discharged, consumers will be required to complete a pre-discharge financial education course from an EOUST (or Bankruptcy Administrator) approved agency. The NFCC believes that the pre-discharge financial management educational course will provide more Americans than ever before with the financial know-how they need to manage their money, keep their personal finances in order and reduce the chance of future financial problems. Here’s what you can expect from the pre-discharge education:
  • Estimated course length: 2 hours
  • Content: NFCC members approved to provide the pre-discharge financial education course will address financial literacy issues that will arm individuals with the tools to prevent future financial problems. Among key topics: rebuilding finances after bankruptcy, developing and following a budget, understanding and using credit, “predatory lending” and identity theft.
  • Format: Face-to-face, over the phone, or via Internet.
Certificate of completion – Consumers will be given a certificate verifying completion of the course, and will have to file that certificate with the Bankruptcy Court in order to have their debts discharged.

What is a Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy case is one in which the bankruptcy petition is filed under Chapter 7 of the Bankruptcy Code. Under Chapter 7, a Trustee is appointed to sell or liquidate any of the debtor’s “non-exempt” assets or property in order to raise cash to make payments to creditors. An “exempt” asset is property of the debtor that the law specifically allows the debtor to keep. A Chapter 7 case is sometimes referred to as a “straight bankruptcy” or a “liquidation case.” Chapter 7 bankruptcies have been the most common form of individual bankruptcy in recent times. The vast majority of Chapter 7 cases are “no-asset cases” in which the Trustee determines that there are no non-exempt assets that must be liquidated to pay creditors. A Chapter 7 debtor who cooperates with the Trustee and complies with all of the provisions of the Bankruptcy Code receives a discharge. A discharge is a Bankruptcy Court order that releases the individual from the legal obligation to pay debts. Certain debts, such as child support and some taxes, are not covered by the discharge and are known as “non-dischargeable debts.” If you are in default on a loan that is secured by collateral, such as a home mortgage, the creditor can foreclose on the loan and sell the collateral even after you receive a discharge unless you specifically agree to remain legally liable for that loan under the original or modified payment terms. This is known as a “reaffirmation agreement.

What is a Chapter 13 Bankruptcy?

In a Chapter 13 case, an individual with regular income repays all or a portion of his or her debts over a three-to-five-year period through a monthly payment plan approved by the Bankruptcy Court. For that reason, a Chapter 13 case is sometimes referred to as a “wage-earner plan.” The Chapter 13 Trustee does not take possession of non-exempt assets but supervises the case and administers the payments to creditors under the Chapter 13 plan. A Chapter 13 debtor who completes all payments provided for in the approved Chapter 13 plan receives a discharge. Under certain circumstances, a discharge also may be granted to Chapter 13 debtors who do not complete the payments under their plan because of circumstances beyond their control. A Chapter 13 discharge may allow the discharge of certain debts that may not be discharged in Chapter 7, which may make Chapter 13 more attractive to you, depending upon your unique circumstances. If the payment plan is not successful, it may be possible to convert the case and obtain a discharge under Chapter 7.

How much does a Chapter 7 bankruptcy cost?

The fee paid to the United States Bankruptcy Court for filing a Chapter 7 bankruptcy case is presently $299, but is subject to change, so be sure to ask your attorney what the current filing fees are. If you are represented by an attorney, you will have to pay an additional fee for legal services. The fees charged by attorneys are not uniform and vary from place to place and from attorney to attorney.

How much does a Chapter 13 bankruptcy cost?

The fee paid to the United States Bankruptcy Court for filing a Chapter 13 case is presently $274, but is subject to change, so be sure to ask your attorney what the current filing fees are. If you are represented by an attorney, you will have to pay an additional fee for his or her legal services. The fees charged by attorneys in Chapter 13 cases are also not uniform and vary from place to place and attorney to attorney, but they are generally higher than those charged for Chapter 7 cases.

How do I receive my payments?

You have five options:

  1. Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  2. Term – equal monthly payments for a fixed period of months selected.
  3. Line of Credit – unscheduled payments or installments, at times and in amounts of your choosing until the line of credit is exhausted.
  4. Modified Tenure – combination of line of credit with monthly payments for as long as you remain in the home.
  5. Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

Do I need an attorney to file for bankruptcy?

You are not required to be represented by an attorney, but the advice of an attorney is generally helpful in understanding your rights and the consequences of your bankruptcy case, particularly in light of the recent changes to bankruptcy law. If you decide to file a Chapter 7 or Chapter 13 bankruptcy case, the advice and assistance of an experienced bankruptcy attorney is generally a worthwhile expense.

Can I keep my credit cards after filing?

Whether you will continue to have and use any given credit card account is up to the issuer of the card. Some issuers may permit you to keep your account if you “reaffirm” payment of your debt to the issuer. There may be other alternatives available, such as secured or guaranteed payment cards that function more like debit than credit cards.

Can I be fired for declaring bankruptcy?

The Bankruptcy Code generally prohibits termination of employment or discrimination with respect to employment solely because an individual (1) has filed a bankruptcy case, (2) has been insolvent before the case was filed, or (3) has not paid a discharged debt.

Are there less expensive alternatives to hiring an attorney?

So-called “bankruptcy petition preparers” offer services in some areas of the country or over the Internet. Although their fees are usually lower than those of attorneys, bankruptcy petition preparers are generally not attorneys and are, therefore, not permitted to give you legal advice or represent you in court should there be problems with your case. If you are a person with very limited means, in some states or cities you may be able to obtain the services of an attorney who will represent you without charge on a pro bono basis through a legal aid bureau or local bar association.

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