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BASIC BANKRUPTCY SUMMARY

Everyone has heard of "debtor's prison."  Well, in this modern age we have done away with the notion of a debtor's prison.  So if you're having serious financial difficulties, then you should consider filing bankruptcy.  First of all, I want to give a brief description of both chapter 7 and chapter 13:

    Chapter 7:    This is a "Get a Fresh Start" or a "Liquidation" type bankruptcy where the bankruptcy trustee looks to see if there's any equity in assets for the benefit of creditors.  Usually, the debtor is able to exempt most assets especially if there's very little equity in a house or vehicle.  The Virginia "exemptions" which generally apply are that you can keep: your car (up to certain limits) and up to $5,000 per debtor.  Thus, if you qualify for a Chapter 7, then you can get rid of most of your debts (especially credit cards) except you'll still have to pay your mortgage payment (if you are going to keep a house) and your car payment (if you keep your car).

    Chapter 13:    If your assets have lots of equity, (usually a home) and you don’t have enough "exemptions," then as long as you have regular income and certain debt limitations, then you can generally come up with a payment plan over three to five years whereby interest will stop running on credit cards and you'll be paying a percentage of your debts to a bankruptcy trustee who will then parcel out the payments to creditors. (You obviously have to still make your mortgage and car payments, if any, but often any past due amounts can be paid over the 3-5 years.)  Under Chapter 13, you can keep most all of your property as long as you make your payments under the plan.  And once you complete your plan, you get your discharge of most of your debts.

The law was changed in 2005 to require everyone to examine what sort of income they have received during the previous 6 months before bankruptcy to see whether or not average monthly income over that time period is below or in excess of the "median income" for a household your size.  If you're an "above median" debtor, there may be some problem areas. 

I'd now like to point out several other points about bankruptcy that you might want to consider:

  1. Generally speaking, you can't file a Chapter 7 every 8 years.
  2. It's sometimes possible depending upon lots of complexities, that you can recover money withheld from your paychecks or bank accounts by reason of garnishments.
  3. Once you start the process, you give creditors (who call) our name and phone number and then the phone calls cease.  That, of course, is a big relief!
  4. The 2005 law also requires you to take a credit counseling course both before you file and after you file.  This course is something that can be taken online or over the phone.
  5. Many debtors wonder how they can reestablish their credit once they file bankruptcy.  First of all, if you're thinking about bankruptcy and you have a lot of financial stress, then you probably have a poor credit rating anyway.  Once you file bankruptcy, many debtors find that they can reestablish their credit by showing that they can pay back small amounts, and can keep a job with a steady income and of course the creditors know that there are limitations as referenced above on filing an additional bankruptcy.  Thus, in some ways, the creditors look on such debtors as being a better credit risk.  I don’t want to minimize the problems that you might have in reestablishing your credit but it certainly is very possible to do so. 


The bankruptcy procedure at Coates and Davenport, P.C. is usually as follows:

  • An office conference with the bankruptcy attorney to gather some preliminary information.
  • You are given "homework" to gather information and documents needed.
  • You are then sent a bankruptcy interview form via e-mail so that you can conveniently fill it out online in the privacy of your home.
  • You review the bankruptcy paperwork for accuracy.
  • Then you come in to sign and the bankruptcy attorney files the paperwork with the bankruptcy court.
  • Then in approximately four to six weeks, you have what's known as a 1st Creditors Meeting down at the new federal building on Broad Street.  There is usually only one such meeting and generally no creditors show up and so it's really not given the correct name.  
  • At the meeting, the trustee in bankruptcy asks you various questions about your paperwork.  However, the bankruptcy trustees are most respectful and this is not at all a scary experience.  You might be worried beforehand, but once you go through it, you'll find that it's really not that bad at all.  
  • Then in about six months from the date you file (a Chapter 7), you'll usually get a "discharge paper" which says that most debts are "discharged." (The discharge in a Chapter 13 comes after the plan payments have been made.)


In conclusion, I've obviously barely scratched the surface in describing the bankruptcy process or in giving you some information about bankruptcy.  And these comments are not meant to be legal advice but merely meant to be a rough summary of what to expect.