Jann C. Washington, Esq.

Attorney at Law

A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems.  This brochure cannot explain every aspect of the bankruptcy process.  There have been news reports suggesting that the changes to the bankruptcy laws passed by Congress in 2005 prevent many individuals from filing bankruptcy.  It is true that these changes have made the process more complicated.  But the basic right to file bankruptcy and most of the benefits of bankruptcy remain the same for most individuals.

What is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start.  The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court.  Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

Despite the cost, Chapter 7 bankruptcy can make sense if you're struggling with overwhelming debt. You should consider it if:

• Your problem debt is greater than 50 percent of your annual income. This usually means medical bills, credit card debt or high-interest loans.

• You see no way of paying off your debt within five years.

• Debt is interfering with other parts of your life, such as hampering your ability to buy a car or save for retirement.

Most debts, like medical bills, credit card debt and even past-due rent, will be forgiven in Chapter 7. This form of bankruptcy won't address student loans, mortgages and most taxes.

What Can Bankruptcy Do For Me?

  • Eliminate the legal obligation to pay most or all of your debts.  This is called a “discharge” of debts.  It is designed to give you a fresh financial start.

  • Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)

  • Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.

  • Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.

  • Restore or prevent termination of utility service.

  • Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

What Bankruptcy Can Not Do?

Bankruptcy cannot, however, cure every financial problem.  Nor is it the right step for every individual.  In bankruptcy, it is usually not possible to:

·Eliminate certain rights of “secured” creditors.  A creditor is “secured” if it has taken a mortgage or other lien on property as collateral for a loan.  Common examples are car loans and home mortgages.  You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money on the debt if you decide to give back the property.  But you generally cannot keep secured property unless you continue to pay the debt.

·Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, most student loans, court restitution orders, criminal fines, and most taxes.

·Protect cosigners on your debts.  When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.

·Discharge debts that arise after bankruptcy has been filed.

What Different Types of Bankruptcy Cases Should I Consider

There are four types of bankruptcy cases provided under the law:

Chapter 7 is known as “straight” bankruptcy or “liquidation.”  It requires an individual to give up property which is not “exempt” under the law, so the property can be sold to pay creditors.  Generally, those who file Chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they cannot avoid or afford to pay.  In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts.  The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep.  In most cases, all of your property will be exempt.  But property which is not exempt is sold, with the money distributed to creditors.

If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a Chapter 7 case probably will not be right choice for you.  That is because Chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

If your income is above the median family income in your state, you may have to file a Chapter 13 case. Median family income is different in each state, and county in each state.  In Ohio, the median income is $42,800 for a single person, $53,200 for a family of two, $60,900 for a family of three, and $74,200 for a family of four.  Higher income consumers must fill out “means test” forms requiring detailed information about their income and expenses.  If the forms show, based on standards in the law, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they cannot file a Chapter 7 case, unless there are special extenuating circumstances.

Chapter 11, known as “reorganization,” is used by businesses and a few individuals whose debts are very large.

Chapter 12 is reserved for family farmers and fishermen.

Chapter 13 is a type of “reorganization” used by individuals to pay all or a portion of their debts over a period of years using their current income.

In a Chapter 13 case, you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years.  The most important thing about a Chapter 13 case is that it will allow you to keep valuable property – especially your home and car – which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors.  In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.

You should consider filing a Chapter 13 plan if you:

      • Own your home and are in danger of losing it because of money problems;
      • Are behind on debt payments, but can catch up if given some time;
      • Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

You will need to have enough income during your Chapter 13 case to pay for your necessities and to keep up with the required payments as they come due.

Most people filing bankruptcy will want to file under either Chapter 7 or Chapter 13.  Either type of case may be filed individually or by a married couple filing jointly.

What Does It Cost to File for Bankruptcy?

It now costs $335.00 to file for bankruptcy under Chapter 7 and $310 to file for bankruptcy under Chapter 13, whether for one person or a married couple.  The court may allow you to pay this filing fee in installments if you cannot pay it all at once.   You will also need to pay the attorney fees.  In a Chapter 7 case the entire attorney fee must be paid before the case is filed.  In a Chapter 13 case, a retainer amount must be paid prior to filing and the remainder of the attorney fee is paid through the bankruptcy plan.  

I will work with you on a payment plan or other arrangements to pay your attorneys fees.

Here is a link to a good site that explains how one can find the funds to hire an attorney to file bankruptcy:  https://www.nerdwallet.com/blog/finance/bankruptcy-costs-pay/

What Must I Do Before Filing Bankruptcy?

You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed.  The agency will review possible options available to you in credit counseling and assist you in reviewing your budget.  Different agencies provide the counseling in-person, by telephone, or over the Internet.  If you decide to file bankruptcy, you must have a certificate from the agency showing that you received the counseling before your bankruptcy case was filed.

Most approved agencies charge between $25 and $50 for the pre-filing counseling.  However, the law requires approved agencies to provide bankruptcy counseling and the necessary certificates without considering an individual’s ability to pay.  If you cannot afford the fee, you should ask the agency to provide the counseling free of charge or at a reduced fee.

If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling.  It is extremely difficult to sort out the good counseling agencies from the bad ones.  Many agencies are legitimate, but many are simply rip-offs.  And being an “approved” agency for bankruptcy counseling is no guarantee that the agency is good.  It is also important to understand that even good agencies won’t be able to help you much if you’re already too deep in financial trouble.

Some of the approved agencies offer debt management plans.  A debt management plan is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors.  Debt management plans can be helpful for some consumers.  For others, they are a terrible idea.  The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not.  You should not consider a debt management plan if making the monthly plan payment will mean you will not have money to pay your rent, mortgage, utilities, food, prescriptions, and other necessities.  It is important to keep in mind these important points:

·Bankruptcy is not necessarily to be avoided at all costs.  In many cases, bankruptcy may actually be the best choice for you.

·If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case).

·There are approved agencies for bankruptcy counseling that do not offer debt management plans.

Our office will provide you with counseling on whether bankruptcy is the best option.  If bankruptcy is not the right answer for you, we will offer a range of other suggestions.  We can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust.

What Property Can I Keep?

In a Chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors.  (If you moved to Ohio from a different state within two years before your bankruptcy filing, you may be required to use the exemptions from the state where you lived just before the two year period.)  In Ohio, you are allowed to exempt the following:

· $136,925 in equity in your residential home;

· $475 of cash on hand or on deposit;

· $3,775 of value in one vehicle;

· $1,600 value in jewelry;

· Interest in one burial plot;

· 75% of your wages;

· $12,625 in household goods, such as furnishings, clothing and appliances – up to a value of $575 value in any single item;

· Private pensions; 401(K), 403(b) and profit sharing plans;

· IRA’s and Roth IRA’s up to $1,171,150;

· Unemployment and worker’s compensation benefits;

· $1,250 value in any property;

· Spousal or child support up to the value reasonably necessary for support;

· $2,400 value in tools of the trade;

. $23,700 in bodily injury award.

The amounts of the exemptions are doubled when a married couple files together.  In determining whether property is exempt, you must keep a few things in mind.  The value of the property is not the amount you paid for it, but what it is worth when your bankruptcy case is filed.  Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.

You also only need to look at your equity in property.  That means you count your exemptions against the full value minus any money that you owe on mortgages or liens.  For example, if you own a $50,000 house with a $40,000 mortgage, you have only $10,000 in equity.  You can fully protect the $50,000 home with a $10,000 exemption.

While your exemptions allow you to keep property even in a Chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind.  In a Chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law.  In most cases, you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.

What Will Happen To My Home And Car If I File Bankruptcy?

In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in Chapter 13.

However, some of your creditors may have a “security interest” in your home, automobile, or other personal property.  This means that you gave that creditor a mortgage ont eh home or put your other property up as collateral for the debt.  Bankruptcy does not make these security interests go away.  If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

In a Chapter 13 case, you may be able to keep certain secured property by paying the creditor the value of the property rather than the full amount owed on the debt.  Or you can use Chapter 13 to catch up on back payments and get current on the loan.

There are also several ways that you can keep collateral or mortgaged property after you file a Chapter 7 bankruptcy.  You can agree to keep making your payments on the debt until it is paid in full.  Or you can pay the creditor the amount that the property you want to keep is worth.  In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt  If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.

Can I Own Anything After Bankruptcy?

Yes!  Many people believe they cannot own anything for a period of time after filing for bankruptcy.  This is not true.  You can keep your exempt property and anything you  obtain after the bankruptcy is filed.  However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors, if the money or property is not exempt.

Will Bankruptcy Wipe Out All My Debts?

Yes, with some exceptions.  Bankruptcy will not normally wipe out:

  • Money owed for child support or alimony;
  • Most fines and penalties owed to government agencies;
  • Most taxes and debts incurred to pay taxes which cannot be discharged;
  • Student loans, unless you can prove to the court that repaying them will be an “undue hardship;”
  • Debts not listed on your bankruptcy petition;
  • Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
  • Debts resulting from “willful and malicious” harm;
  • Debts incurred by driving while intoxicated;
  • Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional     money if the property is sold by the creditor).

What Will Happen To My Tax Refund?

What happens to your refund depends on the timing of the filing of your bankruptcy and the receipt of your refunds:  

  • If your tax refund is based on the year before you filed for bankruptcy, unspent monies go to the estate because the refund is the debtor's money that was unnecessarily paid to the government (state or federal).  It is treated like cash or money in a bank account.  
  • A tax refund based on income you earned the same year as but before you file for bankruptcy goes to the estate. However, you can keep part of the refund to the extent that the refund is based on income earned after the filing date. 

Here are three things you can do to keep your tax refund from creditors:

  • adjust your withholding to reduce your refund to a minimal amount
  • spend the refund on necessary expenses, or
  • include the refund in your bankruptcy exemptions.

If you have received your tax refund and have not yet filed for bankruptcy, you can keep the money out of your bankruptcy estate by spending it. The trustee cannot use money to pay your creditors that you no longer have.

If you spend your tax refund before you file for bankruptcy, make sure you spend it on necessary items. Approved expenses include:

  • mortgage payment, rent, or home repair
  • utilities
  • food
  • clothing
  • medical care
  • car payments, maintenance, or
  • education.

Expenses that are not allowed include:

  • luxury goods
  • repayment to a friend or family member, or
  • repayment of a single credit card.

If you buy luxury goods, the trustee could seek to deny your discharge because of bad faith. If you pay back one of your creditors and ignore the others, the trustee may find that you have made a preferential payment. This means that you have favored one creditor over another. The trustee can force the person or company who received the money to return it to the estate. 

If you spend your tax refund, make sure to spend it on necessary expenses. In addition, keep very good records of how you used the money. 

Will I Have To Go To Court?

In most bankruptcy cases, you only have to go to the proceeding called the “meeting of creditors” to meet with the bankruptcy trustee and any creditor who chooses to come.  Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.

Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear at a hearing.  In a Chapter 13 case, you may also have to appear at a hearing when the judge decides whether your plan should be approved, although not typically.  If you need to go to court, you will receive notice of the court date and time from the court and/or your attorney.

What Else Must I Do To Complete My Case?

After your case is filed, you must complete an approved course in personal finances.  This course will take approximately two hours to complete.  Many of the course providers give you a choice to take the course in-person at a designated location, over the Internet (usually by watching a video) or over the telephone.  If you cannot afford the fee, you should ask the agency to provide the course free of charge or at a reduced fee.  In a Chapter 7 case you should sign up for the course soon after your case is filed.  If you file a Chapter 13 case, you should take the course sometime after confirmation.

Will Bankruptcy Affect My Credit?

There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse. The fact that you’ve filed a bankruptcy can appear on your credit record for ten years from the date your case was filed. But because bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills and you may be able to get new credit.

If you decide to file bankruptcy, remember that debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not own anything on the debt.  Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult or costly to get credit.  You should check your credit report after your bankruptcy discharge and file a dispute with credit reporting agencies if this information is not correct.

What Else Should I Know?

Utility Services – Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy.  However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.

Discrimination – An employer or government agency cannot discriminate against you because you have filed for bankruptcy.  Government agencies and private entities involved in student loan programs also cannot discriminate against you based on a bankruptcy filing.

Driver’s License – If you lost your license solely because you couldn’t pay court ordered damages caused in an accident, bankruptcy will allow you to get your license back.

Co-signers – If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt.  If you file under Chapter 13, you may be able to protect co-signers, depending upon the terms of your Chapter 13 plan.

How Long Will Bankruptcy Stay On My Credit Report?

The results of your bankruptcy case will be part of your credit record for ten (10) years.  The ten years are counted from the date you filed your bankruptcy.  This does not mean you can’t get a house, a car, a loan, or a credit card for ten years.  In fact, you can probably get credit even before your bankruptcy is over!  The question is how much interest and fees will you have to pay?  And, can you afford your monthly payments, so you don’t begin a new cycle of painful financial problems?

Again, debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not own anything on the debt.  Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult or costly to get credit.  You should check your credit report after your bankruptcy discharge and file a dispute with credit reporting agencies if this information is not correct.

Which Debts Do I Still Owe After Bankruptcy?

When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled and you are no longer legally obligated to pay them. However, certain types of debts are NOT discharged in bankruptcy. The following debts are among the debts that generally may not be canceled by bankruptcy:

·Alimony, maintenance, child support, and spousal support;

·Student Loans – Almost no student loans are canceled by bankruptcy.  But you can ask the court to discharge the loans if you can prove that paying them is an “undue hardship.”  Occasionally, student loans can be canceled for reasons not related to your bankruptcy when, for example, the school closed before you completed the program or if you have become disabled.  There are also many options for reducing your monthly payments on student loans, even if you can’t discharge them. 

· Money borrowed by fraud or false pretenses – A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged.  A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong.  Their goal is to scare honest families so that they agree to reaffirm the debt.  You should never agree to reaffirm a debt if you have done nothing wrong.  If the company files a fraud case and you win, the court may order the company to pay your lawyer’s fees.

·Most taxesThe vast majority of tax debts cannot be discharged.  However, this can be a complicated issue.  If you have tax debts you will need to discuss them with your lawyer.

·Most criminal fines, penalties and restitution ordersThis exception includes even minor fines, including traffic tickets.

·Drunk driving injury claims.  

Do I Still Owe Secured Debts (Mortgages, Car Loans) After Bankruptcy?

Yes and No.  The term “secured debt” applies when you give the lender a mortgage, deed of trust, or lien on property as collateral for a loan.  The most common types of secured debts are home mortgages and car loans.  The treatment of secured debts after bankruptcy can be confusing. Bankruptcy cancels your personal legal obligations to pay a debt, even a secured debt.  This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe. 

However, the creditor can still take back their collateral if you don’t pay the debt.  For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on your home.  Or the creditor can just wait until your bankruptcy is over and then do so.  Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral.

For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.

What Are The Side Effects Of Bankruptcy?

  • Temporarily weakened credit: A bankruptcy filing is seen as a negative action on your credit report and the bankruptcy filing itself will appear on your credit report for seven to 10 years. However, the overall effect your bankruptcy has on your credit diminishes as time passes and your more recent actions begin to fill up your credit report.

  • Difficulties getting loans: Because of the effect a bankruptcy filing has on a person’s credit, qualifying for a loan tends to be very difficult in the months directly following bankruptcy. Most people can expect to qualify for only high-interest, low-dollar-amount loans in the months immediately following bankruptcy.

  • Difficulties getting work: These days, many employers conduct credit checks in addition to criminal background checks for potential employees, and, unfortunately, it seems that some employers see a bankruptcy filing as reason not to hire someone.  This is not true for all employers, however.  Typically this applies to those who work in financial fields.

  • Cessation of creditor contact: When you file your bankruptcy petition with the court, a legal protection called the automatic stay takes effect. This protection prevents creditors of all sorts from contacting you, which means you will no longer have to deal with threats of repossession, foreclosure or garnishment over the phone or through the mail during your case.

  • A fresh financial start: Filing for bankruptcy is a major financial step, and it offers a major reward: a chance to start over financially. Assuming your bankruptcy case proceeds normally, you can look forward to a chance to rebuild your finances so that they're stronger than they were before you filed.

  • Stronger credit than before: In the months immediately following bankruptcy, your credit rating may take a hit, but as you apply what you learn in your debtor education course, you have a chance to build strong, healthy credit.

What Is Reaffirmation?

Although you filed bankruptcy to cancel your debts, you have the option to sign a written agreement to “reaffirm” a debt.  If you choose to reaffirm, you agree to be legally obligated to pay the debt despite bankruptcy.  If you reaffirm, the debt is not canceled by bankruptcy.  If you fall behind on a reaffirmed debt, you can get collection calls, be sued, and possibly have your pay attached or other property taken.  Reaffirming a debt is a serious matter.  You should never agree to reaffirmation without a very good reason.

Do I Have To Reaffirm Any Debts?

Can I Change My Mind After I Reaffirm A Debt?

Do I Have To Reaffirm On The Same Terms?

Should I Reaffirm?

Do I Have Other Options For Secured Debts?

Do I Have To Reaffirm Car Loans, Home Mortgages?

What About Credit Cards and Department Store Cards?

No.  Reaffirmation is always optional.  It is not required by bankruptcy law or any other law.  If a creditor tries to pressure you to reaffirm, remember you can always say no.

Yes.  You can cancel any reaffirmation agreement for sixty (60) days after it is filed with the court.  You can also cancel at any time before your discharge order.  To cancel a reaffirmation agreement, you must notify the creditor in writing.  You do not have to give a reason.  Once you have canceled, the creditor must return any payments you made on the agreement.  Also remember that a reaffirmation agreement has to be in writing, has to be signed by your lawyer or approved by the judge, and has to be made before your bankruptcy is over.  Any other reaffirmation agreement is not valid.

No.  A reaffirmation is a new contract between you and the lender.  You should try to get the creditor to agree to better terms such as a lower monthly payment or interest rate.  You can also try to negotiate a reduction in the amount you owe.  The lender may refuse but it is always worth a try.  The lender must give you disclosures on the reaffirmation agreement about the original credit terms, and any new terms you and the lender agree on must also be listed.

If you are thinking about reaffirming, the first question should always be whether you can afford the monthly payments.  Reaffirming any debt means that you are agreeing to make the payments every month, and to face the consequences if you don’t.  The reaffirmation agreement must include information about your income and expenses and your signed statement that you can afford the payments.  If you have any doubts about whether you can afford the payments, do not reaffirm.  Caution is always a good idea when you are giving up your right to have a debt canceled.  Before reaffirming, always consider your other options.  For example, instead of reaffirming a car loan you can’t afford, can you get by with a less costly used car for a while?

You may be able to keep the collateral on a secured debt by paying the creditor in a lump sum the amount the item is worth rather than what you owe on the loan.  This is your right under the bankruptcy law to “redeem” the collateral.  Redeeming collateral can save you hundreds of dollars.  Because furniture, appliances, and other household goods go down in value quickly once they are used, you may redeem them for less than their original cost or what you owe on the account.  You may have another option if the creditor did not loan you the money to buy the collateral, like when a creditor takes a lien on household goods you already have.  You may be able to ask the court to “avoid” this kind of lien.  This will make the debt unsecured.

If you are behind on a car loan or a home mortgage and you can afford to catch up, you can reaffirm and possibly keep your car or home.  If the lender agrees to give you the time you need to get caught up on a default, this may be a good reason to reaffirm.  But if you were having trouble staying current with your payments before bankruptcy and your situation has not improved, reaffirmation may be a mistake.  The collateral is likely to be repossessed or foreclosed anyway after bankruptcy, because your obligation to make payments continues.  If you have reaffirmed, you could then be required to pay the difference between what the collateral is sold for and what you owe.  If you are up to date on your loan, you may not need to reaffirm to keep your car or home.  Some lenders will let you keep your property without signing a reaffirmation as long as you continue to make your payments.  Sometimes lenders will do so if they think the bankruptcy court will not approve the reaffirmation agreement.  Sometimes you can negotiate a lower interest rate in exchange for reaffirmation.  Reaffirmation also allows the creditor to report payments to your credit bureaus which improves your credit score with each successful payment.

It is almost never a good idea to reaffirm a credit card.  Reaffirming means you will pay bills that your bankruptcy would normally wipe out.  That can be a very high price to pay for the convenience of a credit card.  Try paying cash.  Then in a few years, you can probably get a new credit card, that won’t come with a large unpaid balance.  If you do reaffirm, try to get something in return, like a lower balance, no interest on the balance, or a reasonable interest rate on any new credit.  Don’t be stuck paying 18-21% or higher.  Some department store credit cards may be secured.  The things you buy with the credit card may be collateral.  The store might tell you that they will repossess what you bought, such as a TV, washer, or sofa, if you do not reaffirm the debt.  Most of the time, stores will not repossess used merchandise.  SO, after a bankruptcy, it is much less likely that a department store would repossess “collateral” than a car lender.  However, repossession is possible.  You have to decide how important the item is to you or your family..  If you can replace it cheaply or live without it, then you should not reaffirm.  You can still shop at the store by paying cash, and the store may offer you a new credit card even if you don’t reaffirm.  (Just make sure that you old balance is not added into the new account.

Can I Keep A Rental Property In Bankruptcy

Whether a bankruptcy debtor can keep rental property will depend on the specifics of the case, but in general, there are two issues created by rental properties in bankruptcy: (1) the value of the property as an asset, and (2) the income and expense related to the property.


If the rental property has equity; that is, the property’s value is more than what is owed against the property, then the rental property would likely be seized and sold in chapter 7 bankruptcy.  In chapter 13 bankruptcy it is possible to keep rental property in bankruptcy so long as the monthly payment in the chapter 13 payment plan can reconcile the value of that equity. For example, if the rental property has $20,000 equity, the chapter 13 plan must minimally pay $20,000 to the debtor’s unsecured creditors over the life of the plan (that is what we call reconciling the value of non-exempt equity). If there is no equity in the rental property, then this issue is moot.


The main challenge with rental properties in bankruptcy is related to the income and expense the property creates. The court looks at the cash flow position of the rental property; is it positive cash flow (profitable), break-even, or negative cash flow. In chapter 7 bankruptcy the rental income is income for the Means Test[1], so that income counts toward qualifying (and disqualifying) the debtor for chapter 7 bankruptcy. In most cases, the rental property has a corresponding mortgage expense so the income is offset and usually moot. However, if the property is significantly cash flow positive, in theory, a chapter 7 trustee may still seize the property and attempt to sell it as a going concern. For example, if the property is consistently $1,000 per month cash flow positive, someone may be willing to buy that income stream at a future dollar discounted value. However, if there were any risk of that last eventuality, the debtor would be filing chapter 13 or chapter 11 bankruptcy.


The cash flow position is particularly important in chapter 13 bankruptcy. If the rental property is significantly cash flow negative, the chapter 13 trustee will always object to the debtor supporting that property. For example, if the property rents for $1,200, but the combined mortgage, HOA, and other expenses are $1,600, the trustee will argue that the debtor should pay that $400 to unsecured creditors. The reason being that the debtor’s unsecured creditors are being unfairly prejudiced if the debtor is allowed to maintain the rental property which is not necessary for the debt reorganization. That doesn’t mean the court forces the sale, but the court may not allow you the budget to make-up the monthly short fall.

In short, yes, it is possible to keep rental properties in bankruptcy, but whether it is practical to do so is a discussion for you and your attorney.

[1] This is a test developed by the bankruptcy courts to determine if a debtor qualifies for Chapter 7 bankruptcy.

Why Shouldn't I File Without An Attorney

If you are thinking about filing a Chapter 13 pro se (without an attorney), please reconsider. Read this paragraph from a 2011 report completed by the United States Courts:

Common problems in self-represented debtors’ cases include: the failure to file required documents, resulting in dismissal; filing a chapter which may not be correct for the debtor’s circumstances; choosing incorrect property exemptions; unnecessarily filing bankruptcy in the first place; not filing the required credit counseling or financial management certificate; being unable to answer or adequately defend an action seeking to deny discharge; and not understanding the significance of certain motions or adversary actions. Self-represented creditors are often harmed by not filing a proof of claim in time, by missing the deadline to file a dischargeability action, and having difficulty filing an objection to a claim. 

Chapter 13 is typically considered the chapter of choice for those wage-earners seeking to catch up on missed car or house payments and avoid repossession of a vehicle or foreclosure of a home. Confirmation of the chapter 13 plan that provides for payment of such arrearages over many months is necessary to begin the process of making up for missed payments. Completion of a chapter 13 plan through discharge can take 36 to 60 months, and is very difficult to achieve even in attorney-represented cases. Approximately 55 percent of attorney-represented cases reach confirmation. The number of self-represented debtors that manage to get to confirmation of a chapter 13 plan is 0.4 percent – clearly demonstrating that it is nearly impossible for this population to succeed in chapter 13.

That means that 550 out of 1000 attorney represented chapter 13 debtors are able to get their chapter 13 plan confirmed while 4 out of 1000 pro se debtors get their chapter 13 plan confirmed.


“This is a debt-relief agency. We help people file for bankruptcy under the bankruptcy code.”

Jann C. Washington, Esq.

5247 Wilson Mills Rd. #185

Richmond Hts., OH 44143

(440) 552-5492

Fax: (440) 571-0522

Email: [email protected]



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