Frequently Asked Questions About Debt Relief or Bankruptcy
In all the time working with clients, we have found that there are many frequently asked questions about Debt Settlement, Debt Relief & Bankruptcy. Here are some of them:
In most instances, the answer is yes. Both Chapter 7 and Chapter 13 have options to protect your cars, real property, and other assets.
Talking to a bankruptcy attorney is the best way to determine which option is best for you.
What is the difference between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy? Which one should I file for?
The right option depends on your situation. How much debt you have, whether you qualify for Chapter 7, your disposable household income, whether you need to cure (repay) mortgage or car payment arrears, whether you owe taxes, and whether you have non-exempt assets you want to keep. We can help you find the best fit for your circumstances, but here is a good starting point:
Chapter 7 is known as a “liquidation” bankruptcy and Chapter 13 is a repayment or reorganization plan. Both usually discharge unsecured regular debt such as credit cards and personal loans when the case is completed, but both have unique benefits.
Chapter 13 has functions that can ‘cure’ (repay) mortgage and Homeowners Association ‘arrears’ (past due payments), which can avoid or stop foreclosure. It can cure car payment arrears to stop repossessions, and in certain situations can reduce the car loan principal balance owed and/or interest rate and repay taxes or domestic support obligations (child support and/or alimony).
Chapter 7 is a quicker and cheaper process and usually preferred by people who qualify (under a certain household income threshold). It doesn’t cover all functions available in Chapter 13 though and may not be the best fit for your needs.
If you are behind on your mortgage or car payments, facing foreclosure, owe taxes or domestic support obligations (child support and/or alimony), you should contact a Honolulu bankruptcy attorney for a free consultation to check your circumstances and help you through this process.
Chapter 13 bankruptcy is typically a three-to-five-year monthly repayment plan that can help most individuals cure (repay back payments) their secured loans such as car loans and mortgages, stop foreclosures, stop repossessions and garnishments, and eliminate certain unsecured debts. Many high-income earners (who don’t qualify for chapter 7) can use Chapter 13 to eliminate a substantial portion of their unsecured debts and pay a small percentage of it at 0% interest vs. The typical 20%+ credit card interest rate. You are also protected from your creditors contacting you as soon as your case is filed and while the case is active.
It really depends on your personal circumstances.
If you have a good credit score when you file bankruptcy, you will likely experience a significant reduction in your credit score after filing the case. If your credit score is low when you file, which often is the case for individuals who are behind months and sometimes years on their credit cards and loans payments, the credit score is likely to be minimal after filing bankruptcy. However, if you are disciplined and follow your bankruptcy attorney’s advice, you should be able to bring your credit score back to the 700s within a couple of years of filing bankruptcy. And, if your credit score is low when you file bankruptcy, you will likely rebuild it much faster than other debt-relief options such as debt settlement or debt restructuring.
While child/spousal support won’t be discharged, filing for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy can help. These payments can become more manageable by writing off other debts. Chapter 13 may allow you to extend the repayment period by up to five years, resulting in a lower monthly payment.
Caution is advised when making big decisions, and while debt relief agencies may appear to have the “quicker and easier” options, these may cost you financially in the future. Financial problems often stem from long-term problems, and short-term solutions can be like putting a band-aid on a broken arm; it looks like you’re doing something, but it’s not actually helping you heal.
Lawyers and bankruptcy attorneys often offer free initial consultations (like us) where you can get a full perspective on your financial options, and what the long-term cost will be. Urgency shouldn’t cost you money, so make sure you weigh your options before making any big decisions.
Call us right away. Most foreclosures in Hawaii are handled by the courts (judicial foreclosures). Your mortgage lender or Homeowners Association must provide a minimum 30-day notice of foreclosure to allow you to cure/repay your back payments (arrears). If you don’t cure the arrears, your mortgage company files a Complaint, and you must file an Answer within 20 days of service to avoid a default judgment against you. After you file an Answer, your case will go through discovery that can take anywhere from a few months to possibly years (depending on how aggressive your lender is), and at some point, most lenders file a Motion for Summary Judgment (MSJ) to obtain a foreclosure judgment.
The MSJ is one of the key phases of the foreclosure process that will determine the length of the process and in turn how much leverage you have against the lender to get a preferable resolution. If you defeat the MSJ, the case will continue to Trial and possibly for another MSJ before Trial if the lender feels it has new information that may justify granting an MSJ.
Absent lender fraud or serious wrongdoing, your lender is more likely than not to win at Trial and obtain a judgment. After the judgment, the Court appoints a Commissioner to handle the foreclosure sale via Auction. At that point, the Commissioner will contact you to seek permission to conduct three open houses that you may refuse. If you refuse, the Commissioner will file a Motion to Permit Sale without Open Houses and will usually schedule the Auction sale for about 3-5 weeks after the Motion is granted.
After the Auction, the lender must file a Motion to Approve the Sale. If the Court approves the Motion to Approve Sale, the lender must prepare the Order Granting it and give you 5 days to respond to it. After that, the lender will send the Order to the Court for the Judge to Sign. The moment the Judge signs the Order granting the sale, you no longer own the property, and your only remedy is seeking damages against your mortgage lender for wrongful foreclosure.
Filing a Chapter 13 bankruptcy at any time before the Judge signs the written Order Granting the sale will stay (pause) the proceeding to give you some time to cure the arrears via refinancing, loan modification, through a five-year repayment plan, or a non-distressed sale of the property. Foreclosure defense would usually buy you time too, but it is usually most effective before there’s a foreclosure judgment. For these reasons, it’s important to consult with an attorney as soon as possible. Ideally, before the Answer to the Complaint is due, and certainly at least 30 days before the MSJ hearing.
If you’re unsure what to do, schedule a free consultation right away. With phone consultation available, wherever you are in Hawaii, we can help get you on the right track.
The best option is always to talk to a professional. Your situation is unique to you, and online answers aren’t always as helpful as they seem. A bankruptcy lawyer or attorney proficient in the laws of their region will be able to tell you what options are available to you and where the best place is to start.
Take advantage of our offer for free initial consultations in Hawaii with no commitment required. The best place to start is getting answers from the professionals!
Most likely not. Court appearances in front of a judge are rare and usually only happen in very complex cases your attorney should be able to anticipate. While official processes can seem frightening, our bankruptcy lawyers and attorneys are there to help and guide you. You must attend a meeting with the person assigned to administer your case (Trustee), but not in court and not in front of a judge. At the meeting, you will be required to answer questions under oath but won’t need to dress formally, and our attorney will prepare you for the meeting and attend it with you. The meeting usually takes about 5-10 minutes to complete.
For more information, book a free consultation with our Honolulu bankruptcy experts to better understand what’s required for your circumstances.
Absolutely not. There are several alternative debt relief options you should consider. You can consider debt settlement with each creditor for a lumpsum payment or installment plan, a global settlement with all your creditors to repay a percentage of your debt (usually between 40%-70%) paid in installments for a monthly fee you can afford. Debt consolidation to reduce your interest rate is also a viable option. While bankruptcy tends to be the fastest and most affordable option, some people prefer to spend more $$ over filing bankruptcy. That is, so long as you take into consideration that you may not qualify for a debt consolidation loan, or some of your creditors will refuse to settle for less than the full balance owed. The key is to figure out what is best for you and actively pursue it.
If you’re in debt, having trouble paying off loans, or just overwhelmed and not sure what to do, book a free consultation with our Honolulu-based bankruptcy attorneys. Their expertise and understanding can help guide you through your options.
Depending on your plan, typically 36 to 60 months.
The best place to start is by talking to a professional. It can seem like a good start to search online for answers, but different sources may tell you, or imply several things, and it can make the process more overwhelming. Keep it simple by talking to a professional who will give you the right advice for your circumstances.
We offer free initial consultations by phone wherever you are in Hawaii with no strings attached. You don’t need to be applying for bankruptcy to talk to a bankruptcy lawyer, often they can guide you towards the right steps for you, and help you navigate your own path towards your debt relief goals.
It depends. Certain debts must be paid in full (Must-Pays), but a certain percentage of all other debts (General Unsecured) are covered too.
- Arrears (back Payments) such as your mortgage, homeowner’s association, and car loans
- Certain kinds of taxes (your bankruptcy attorney will explain which ones)
- Domestic support obligations (child support/alimony type payments)
- Government fines (e.g. traffic/parking tickets)
- Your attorney’s fees
- The Bankruptcy Trustee’s fees
- Court fees
- All other debts (e.g. credit cards, personal loans, medical bills, student loans, etc)
Some people may have to pay all their General Unsecured debts through their Chapter 13 plan, others pay a tiny fraction of them. Your level of disposable income or non-exempt assets will determine how much of your general unsecured debts will be paid.
It will take you at least three years (unless you pay your creditors in full) and up to five years (can’t be longer than that) to complete the Chapter 13 plan. Your disposable household income and value of non-exempt (unprotected) assets determine your plan duration and payment.
Bankruptcy is usually the most effective way to discharge your debt and protect your home, so long as you do it the right way. Do it the wrong way, and you risk losing your home.
First, you need to determine how much equity you have in the property, which is the property’s value minus all the obligations/liens against the property (common obligations are mortgage, HELOC, tax or judgment liens, etc.).
Second, if there’s no equity or minimal equity, Chapter 7 bankruptcy (if you qualify), may be safe to file without the risk of losing your house. If you have a lot of equity, you should consult with your attorney to determine whether you can exempt (protect) the equity in bankruptcy. If the answer is yes, you should discuss the option of filing chapter 7 or 13 with your bankruptcy attorney.
If you can’t protect the equity in your property in bankruptcy, you may be able to file chapter 13 bankruptcy to repay part of your debt at 0% interest or prefer to settle with your creditors outside bankruptcy.
For the best advice on your options in Hawaii, schedule a free consultation with our Honolulu firm in person or over the phone.
You have three ways to deal with foreclosure.
- First, catch up on payment in full, which is usually easier said than done.
- Second, hire an attorney to defend you in the foreclosure case. That’s a good option if you have a strong case for wrongful foreclosure or wrongdoing on the part of the lender, or when the mortgage balance exceeds the property value and you apply for a loan modification, or if you plan to sell the house within a few months and want to complete a non-distressed sale.
- Third, file Chapter 13 bankruptcy that stays the foreclosure proceeding (pauses the proceeding) while you either repay your arrears (back payments) over five years (in addition to your ongoing regular payments, or sell the house, or apply for a loan modification (usually effective for 6-12 months). The bankruptcy option is usually considerably less costly than foreclosure defense. Therefore, it should be the preferred method when there’s a lot of equity in your property and the foreclosure is due to non-payments and not mortgage lender’s fraud or wrongdoing.
There’s no one-size-fits-all solution, and your best option is to talk to a professional who specializes in the laws governing your state. If you live in Hawaii, we offer free consultations in Honolulu, or over the phone if you can’t travel.
The word might seem scary, but bankruptcy can be a good thing. Protecting you from creditors can help reduce stress and allow you to make calmer financial decisions, but it can also eliminate debts that feel impossible to pay off. It can be a good place to start rebuilding credit and can protect your living situation by allowing you to keep things you need to survive, like a place to live and income you need to live on! While it may not discharge all your debts, it can negotiate easier terms and make your financial future more manageable.
Talk to a bankruptcy lawyer today to consider if it’s the right action for you.
No. By law, you are entitled to certain asset protection. For example, most retirement accounts are protected from creditors up to a specific value. Liquidation usually means using your unprotected assets to repay creditors. While it’s important to remember that every situation is different, and your case will be considered individually, asset protection in bankruptcy is perhaps the most important reason to consult with an experienced bankruptcy attorney. Sometimes, protecting your assets will require pre-filing planning; your attorney should inform you about it and develop a plan to save the assets in bankruptcy or suggest an alternative outside bankruptcy such as debt settlement or loan consolidation.
Yes, we do! Wherever you are in Hawaii, our firm provides free initial consultations regardless of your situation. We know that weighing your options is very important, but big decisions shouldn’t cost you when you need to be tender with your finances. You can’t afford to not take advantage of a free consultation.
To qualify for Chapter 7 in Hawaii, your household income from all sources should be below the threshold (determined by Hawaii’s median household income) for the number of people living in your household.
If your household income is above the threshold, you may still qualify for Chapter 7 if you pass the “Means-Test” (a complicated calculation of your household expenses). Getting the qualification right before filing Chapter 7 is essential, therefore, you should contact our office to schedule a free attorney consultation to find out whether you qualify.
To qualify for Chapter 13 bankruptcy, you must:
- Have no more than $419,275 in unsecured debt
- Have no more than $1,257,850 in secured debts (including mortgages and car loans)
- Be up to date on all your tax filings (income, GET, etc.) at the time of filing, or within a couple of months after we file your case
- Have enough income to pay for your current obligations and living expenses plus sufficient disposable income to make your plan payments
It’s important to remember that debt limits are subject to change. There are certain exceptions to the type and amount of secured or unsecured debt factored in the debt limits eligibility requirements. You should not rely on this information and should consult with a bankruptcy attorney to determine your Chapter 13 eligibility.
Cheap can be very expensive! The legal system is complicated, and while there is no requirement for a professional to represent you, there can be a lot of potential legal traps that may have long-term consequences for you and your finances. Having an expert on your side to navigate these difficulties can be a massive difference between a successful case and potential further debt or legal trouble. But don’t let doubt rule your decisions.
By scheduling a completely free consultation with one of our bankruptcy attorneys, you have the freedom to weigh your options and decide what’s best for you.
No. And your filing will not affect your spouse’s credit or in any other way. However, if you are married and not separated, you are required to disclose your spouse’s contributions to the household income (without disclosing your spouse’s personal information). Married people may file a joint bankruptcy, usually for the exact cost of individual filing. And, it often makes sense to do that if your spouse has a lot of debt.
While it may seem like a good idea to sell or transfer your assets to protect them or pay off your debt to family or friends before filing for bankruptcy, it’s best not to do it. There are two reasons for that. First, the Trustee handling your case may be able to recover gifts and transfers within two years before the bankruptcy filing date and repayment of loans within one year before the bankruptcy filing date, to family and friends. Second, such actions may raise a red flag that will cause parties of interest to take a closer look into your case resulting in a lengthy and sometimes more expensive proceeding, or even worse, by uncovering something you are not aware of that may lead to denial of discharge. The bottom line is this will not help your case, but don’t despair! There can be options to make the proceedings easier, and it may be possible to take similar actions with safe legal backing.
If you’re considering filing for bankruptcy, make sure to consult with a bankruptcy attorney to guide you through how to make actions that will protect you and your case. If you’re uncertain, our Honolulu team is here to help.
Chapter 13 bankruptcy allows you to pay off your late and unpaid payments over the length of your repayment plan (3-5 years) if you are approved. Once you file your Chapter 13 petition, the “automatic stay” will stop foreclosure proceedings. This remains in effect for the duration of your case, except for in a limited set of circumstances that requires court approval.
If you aren’t sure, schedule a free consultation with one of our bankruptcy lawyers for more information about your circumstances.
You can absolutely file for bankruptcy more than once, though your previous case may determine how long you must wait before doing so again. You need to wait eight years between filing chapter 7 cases and six years to file chapter 7 if you previously filed chapter 13. However, you may file multiple chapter 13s, even back-to-back, although you may not be eligible for a discharge in subsequent filings, and so long as you re-file for justifiable reasons.
No. You must disclose all your creditors, assets, and household income from all sources. Disclosure of creditors includes debt to family and friends. There’s no direction there to “keep a creditor outside the bankruptcy.” However, by law, you are allowed to voluntarily repay any of your creditors after you complete the bankruptcy. And while it may seem to make little sense to repay creditors after discharge, you should keep in mind that you may want to pay back a family member or friend. Similarly, small business owners sometimes want to repay certain suppliers and vendors to maintain a business relationship.
No. After you file Chapter 7 and forever after you receive a discharge, all your creditors and debt collectors are prohibited from contacting you, harassing you, or demanding action or payment for debt incurred before you file. The only exceptions are secured creditors, such as car loans and mortgage lenders, if you chose to keep your car or house, and non-dischargeable debt such as certain taxes, child support, alimony, student loans, etc.
Yes, some obligations such as child/spousal support payments, restitution payments, and DUI/DWI-related damages can’t be discharged in Chapter 7. Student loans are difficult to discharge, and certain taxes may be discharged if you qualify if you meet a particular criterion.