Bankruptcy Q & A 3.13.09 Nash & Lodge, PLLP By:  Steven J. Lodge, Esq. lodge@nashandlodge.com   What follows is a list of the top 10 + 1 questions people ask me about bankruptcy, translated for convenience from the “politically correct” original form, to what the inquirer really wants to know. Will filing bankruptcy make my life easier? Yes, probably.  It will stop creditors from hounding you, and ultimately for most people it will make your “bad debt” go away.  But it won’t do your credit rating any good, it won’t create new income for you, and it won’t prevent new debt from replacing the old.    Can I file bankruptcy without losing all my good stuff? Well some of it anyway.  But the more good stuff you have, if it has real value, the less likely you can keep it all.  Bankruptcy is intended to be a “fresh start” – that means not just wiping out debt, but liquidating non-exempt assets too.    Conceptually, think of it as a “restart” button on a Monopoly game.  You get to start over with the same assets that you started the game with – but not with all the properties you may have purchased before you pushed that button.  The start-up assets are what is exempt from the bankruptcy estate.    This is an over-simplification though; the law is complex.  There’s a lot you can keep – even more if you plan ahead.  That’s key.                                                                                        Can I pay back my parents (brother, sister, son, daughter, buddy, etc.) the money they loaned me a while back, without affecting my bankruptcy? No.  After you file, or within the 180 days before you file, (with some exceptions that may not apply,) you don’t get to pick and choose who gets paid.  Violations may be voided, or worse, they may be deemed fraudulent.  You can voluntarily pay them back after your discharge if you want.   But what the bankruptcy court doesn’t know won’t hurt me, right? Right and Wrong.  It’s always true that undiscovered wrong-doing might result in a reward to the wrong-doer.  But today’s bankruptcy laws require detailed disclosure of financial affairs, and the Trustee, not to mention your creditors, may be looking for a way catch you engaging in fraud.  That means potential denial of discharge, voided transactions or lawsuits against those who you may have paid wrongfully, or even criminal repercussions,  Should I pay ANY of my creditors if I know I’m going to file bankruptcy? You may not have a choice.  It depends on your plan and when filing is strategically right for you.  There are valid reasons to wait to file – for example if you think a contingent payment may come in that means you won’t need to file at all.  In that case, paying on a debt that you will discharge if you DO file is wasted money.  Paying on a debt that you hope to reaffirm, or on a debt that can’t be discharged makes more sense.  But making a payment that will inevitably lead to problems is ill-advised.   * Be careful when using credit to survive until you ultimately file bankruptcy.  If you incur debt that you know or should know is unlikely to be repayed, it can be considered “fraudulent” and discharge can be denied for that debt.  Example – think twice before using your credit card to pay off other creditors before you file.  Not only may it be a voidable “preference” payment, but it may also constitute a fraud, and if there’s any debt you WANT to discharge, it’s credit card debt.    Do I have more options in a Chapter 13?   Yes, but reorganization is more complicated and more costly.  To qualify you must have some disposable income from which to pay according to “the Plan.”  You’ll probably still need to liquidate assets, and you’ll be bound to the Plan for 3 – 5 years.  If you make all payments then remaining unpaid debt is discharged.  It can be seen as a way to “buy time”, which creates options.   Do I get to pick what debt I reaffirm? To a point.  Mortgages are often reaffirmed, as are vehicle loans.  This is because starting over without a car or a home is going to be tough.  The general rule is that reaffirmation is approved if the collateral securing the debt is important to your “fresh start” and if you have equity in the collateral.  Should my spouse file too? Probably, but it’s not mandatory.  A closer look at your debt structure is required.  If you have joint debt, a discharge of one debtor won’t discharge the other.    My car and my house is exempt, which means I get to keep them, right? Yes, with limitations.  Exemptions aren’t usually “complete” – they are only exempt up to a certain value.  Thereafter, if you want to keep the asset you need to “buy back” the non-exempt portion.  Also, if your car or house is collateral for a debt, you’ll need to reaffirm the debt, which is a separate process and potentially an additional hearing, so it may increase the cost of your bankruptcy.   I can’t afford to buy back the equity in my Hummer, what do I do? Let it go.  Luxuries and expensive toys are, as a generally proposition, casualties of bankruptcy.  That said, equity is based upon “value”.  In bankruptcy value is based not upon “fair market” but rather “liquidation”.  Your car may be very valuable to you, and it may have an NADA trade value in excess of the exemption.  But if you had to liquidate the car today, for example at an auction, what could you get for it?  In a contested bankruptcy these issues can be fought over at length.  Most bankruptcies are not contested.    * This is why advance planning is key.  If liquidation is inevitable you are often better off doing it under your own supervision rather than under the Trustee’s supervision.