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Ask Our Lawyer - September 2001

Question: Recently, I incurred a lot of medical bills because of an accident I had while working on my bike in my barn. I don't have any health insurance so I'm going to have to pay for them myself. I don't make enough money to pay for the bills and pay the mortgage and car payment, so I'm thinking of filing for bankruptcy. What do I have to do to file for bankruptcy?

Answer: Generally speaking, in order to file a petition in the Bankruptcy Court, all you need to do is get a copy of the bankruptcy petition form, fill it out and file it with the court. When the petition is filed, the court will send out notices to your creditors in order to stop any collection activity that might be occurring until the court makes a decision on the dischargeability of your debts. Dischargeability is the purpose of filing for bankruptcy protection. Once the court has determined that your debts are dischargeable, the creditors are no longer able to try and collect those.

There are two types of bankruptcy proceedings that the average individual may encounter, and they are named for the chapters of the Bankruptcy Code in which the requirements are found. Chapter 7 bankruptcy is also known as a liquidation. In a Chapter 7 bankruptcy, all the assets of the debtor would be assembled and collected by the court. The court would then review all of the debts of the debtor and pay out the collected property to those debtors. Once that is accomplished, all of the claims from the debtors would be discharged. In a typical consumer bankruptcy, most individuals who end up filing bankruptcy have no assets to speak of and, therefore, most of those bankruptcies are considered "no asset" bankruptcies. That is, there is no money in the estate to distribute to the various creditors. In addition, the Bankruptcy Code allows debtors to reaffirm certain debts. Many debtors will choose to reaffirm a mortgage loan or a car loan in order to keep their house of car and continue to pay the payments on those items. Other bills, such as credit card bills, medical bills, and other revolving payment plans, might then be subject to discharge. In addition, there are certain exemptions provided in the Code for household items and clothing, which means that typically household furnishings and personal clothing would not be subject to the trustee's efforts to assemble a bankruptcy estate. However, it is important to realize that if there is a security interest in any items such as a boat, trailer, car, or furniture that is being rented from a furniture rental company, it is possible that those items may be subject to repossession at the conclusion of the bankruptcy because of the security interest that is being held by the creditor. In any event, it is important that you contact an attorney to help you prepare the forms and to discuss your options in filing bankruptcy.

The other typical consumer bankruptcy is known as a Chapter 13 bankruptcy or a reorganization. In a Chapter 13 bankruptcy, the trustee requires that the debtors submit a plan which is approved by the Bankruptcy Court. That plan would consist of a series of payments typically over 3-5 years in which the debtor would agree to make payments to creditors in order to pay off portions of the debt that is owed. Typically, the trustee will insist that a Chapter 13 plan be filed if the debtors' income exceed the debtors' debts after revolving loan payments such as credit cards are discounted. In those instances, the debtors will be required to make certain payments over the period of the plan to pay off portions of the debts. In other respects such as the stay of collection proceedings and the ultimate discharge of debts, Chapter 13 and Chapter 7 bankruptcies are relatively similar.

Finally, it is important to note that the United States Congress is considering changes to the Bankruptcy Code which would make it more difficult to discharge revolving credit debt, such as credit cards and department store credit. It is, therefore, very important that if you are considering filing bankruptcy that you consult with an attorney to determine how to proceed.

If you have any questions you would like to ask the lawyer, please submit them to: ASK OUR LAWYER, P.O. Box 2850, Indianapolis, Indiana 46206-2850.