Minnesota Bankruptcy Myths and FAQs

What You Need to Know: Fact and Fiction About Bankruptcy

Although more than a million Americans file for bankruptcy every year, the stigma and the myths still abound. Bad information and unfounded fears cause many people to struggle needlessly, waste money or lose assets by waiting too long to seek bankruptcy protection.

At Hoglund Law Offices®, we care about our clients and that starts with putting you at ease about bankruptcy by educating you about the advantages and disadvantages of bankruptcy. We can promise that you will be treated with dignity and respect. We can promise that one of our knowledgeable attorneys (not a paralegal or intake clerk) will answer your questions or concerns in your free initial consultation. We can offer zero down filing to get your petition filed without delay even if you do not have the money to pay an attorney today.

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Frequently Asked Questions · Glossary of Bankruptcy Terms

Busting the Top Myths About Bankruptcy

The sooner you file for bankruptcy, the sooner you will have true protection from creditors, real debt relief and peace of mind you haven’t felt for a long time. Don’t let these common misconceptions hold you back:

  • They changed the law so people can’t file bankruptcy anymore. Congress did make major changes to the law in 2005, in part to make it harder to file bankruptcy. There are a few more hoops and a little more expense, but the vast majority of people who qualified for Chapter 7 discharge of debts under the old rules still qualify under the new means test.
  • I will lose everything I own. Most of our clients do not forfeit any property. The bankruptcy exemptions should enable you to keep your house, car, retirement, insurance and nearly everything else you own.
  • My credit will be ruined. Usually, your credit is already ruined or your credit score is decreasing. By eliminating debt and starting fresh, you can actually rebuild good credit. Within months, you can obtain new credit cards. Most people can get car loans or even a mortgage within a few years or sometimes sooner,
  • Everyone will know I filed. Personal bankruptcies are public record, but they are not published in local newspapers. It is unlikely anyone will find out that you declared bankruptcy. Business bankruptcies, on the other hand, are commonly published in the newspaper.
  • Bankruptcy only delays a foreclosure. Chapter 13 bankruptcy stops foreclosure proceedings indefinitely. Your mortgage arrears are rolled into your repayment plan. As long as you can keep current with the Chapter 13 payments, bankruptcy can save your house.
  • Debt consolidation is better. Bankruptcy should be a last resort, but there are many unscrupulous companies that prey on debtors and many incompetent services that fail to provide any meaningful debt relief. Talk to a bankruptcy lawyer before you throw away money on debt consolidation loans or debt settlement and possibly make matters worse. Debt consolidation easily can cause you to be worse off than if you filed bankruptcy.
  • I can get a workout or loan modification. Banks and mortgage companies have no obligation and little incentive to renegotiate your mortgage. Many lenders will go forward with foreclosure while they are “processing” your workout request. Loan modification programs, even those sponsored by the government, turn down the vast majority of applicants.
  • Bankruptcy is for deadbeats. Bankruptcy was written in the U.S. Constitution to provide a second chance to honest debtors who incur debt through hardships. The majority of our clients seek bankruptcy because of unemployment, medical bills, divorce, death of a spouse or relying on credit cards for necessities rather than luxuries.

Minnesota Bankruptcy FAQ · Answers to Frequently Asked Questions

DEVELOPER — Link questions in list to corresponding anchors in the text

What is a Chapter 7 Bankruptcy?
What is a Chapter 13 bankruptcy?
Will bankruptcy stop foreclosure?
Will bankruptcy stop repossession?
Will bankruptcy stop garnishments or lawsuits?

At what point will bankruptcy begin to assist a debtor?
Will filing for bankruptcy stop harassing phone calls?
Will my employer be notified of my bankruptcy?
What types of debt are typically discharged?
Can bankruptcy help with income tax debt?

How much does it cost to file bankruptcy?
How can Hoglund Law’s bankruptcy attorneys help?
How are attorney fees paid?
What information will I need to bring to an appointment?
What happens after I file?

What is a meeting of creditors?
What can I expect during the free consultation?
Does filing bankruptcy have to be done by both husband and wife?
What happens to cosigners that don’t file bankruptcy?
What assets are protected when I file bankruptcy?

Does filing bankruptcy put any tax refunds in jeopardy?
Does filing bankruptcy put any possible future ESOP, existing 401(k) or other retirement plans in jeopardy?
Do notices of filing bankruptcy get published in local papers?
Why file bankruptcy?

What should I expect in the months following filing for bankruptcy?
What does bankruptcy do to my credit?
How can I rebuild my credit?
Other sources of information regarding credit repair
What debts are not erased by bankruptcy?

What is Chapter 7?

A Chapter 7 bankruptcy is the most common type of consumer bankruptcy. A Chapter 7 typically will discharge or eliminate credit card balances, installment loans, medical bills and most other unsecured debt. In nearly all cases, a debtor will keep all his or her belongings and property. If a debtor is current with his or her mortgage and automobile payments, a debtor typically is able to continue the payments to his or her lender and to retain possession in virtually all Chapter 7 cases.

What is Chapter 13?

A Chapter 13 (or wage earner plan) is a type of bankruptcy in which the debtor proposes an affordable repayment plan to the Chapter 13 trustee. A Chapter 13 allows individuals to retain their property and personal belongings that may otherwise not be exempt. Usually, a debtor will file a Chapter 13 Plan to retain possession of homes or automobiles that the debtor fears may be repossessed or foreclosed. A Chapter 13 can help the debtor catch up on auto or home loans that are past-due, and pay for non-dischargeable taxes, back child support and student loans.

Will filing bankruptcy stop foreclosure?

In most instances, filing for bankruptcy will stop foreclosure on mortgages. A Chapter 13 repayment plan can offer a debtor a means of catching up on delinquent mortgage payments and allows a debtor to retain possession of a home.

Will bankruptcy stop repossession?

Filing for bankruptcy typically will stop the repossession of automobiles and mobile homes. Also, a Chapter 13 repayment plan will allow the debtor the opportunity to become current with the automobile or mobile home loan that is delinquent.

Will bankruptcy stop garnishment or lawsuits?

The filing of a Chapter 7 or Chapter 13 bankruptcy will stop a creditor from continuing almost all civil legal proceedings against the debtor. The most common types of civil legal proceedings or lawsuits are those brought on behalf of credit card lenders, hospitals, clinics and mortgage companies. The filing of a Chapter 7 or Chapter 13 bankruptcy will not stop a criminal proceeding.

At what point will a bankruptcy begin to assist a debtor?

Bankruptcy will protect a debtor upon the filing date of a bankruptcy petition. A petition for bankruptcy is filed when a completed petition is presented along with the required filing fee to the Bankruptcy Court. When your bankruptcy petition is filed, the Bankruptcy Court mails a notice to your creditors to discontinue any type of collection efforts, including harassing phone calls, lawsuits, foreclosure and repossessions.

Will filing for bankruptcy stop harassing phone calls?

Yes. Filing for bankruptcy will prohibit any type of collection effort regarding a civil debt. At our firm, we usually ask clients to begin referring harassing telephone calls to our office even before filing the client’s bankruptcy petition.

Will my employer be notified if I file bankruptcy?

Usually, an employer does not have any reason to be notified of a bankruptcy filing. The most common instance when an employer is notified of a bankruptcy filing would be to stop a pending garnishment upon a debtor’s paycheck.

What types of debts are typically “wiped out” in a bankruptcy?

  • Credit cards
  • Medical bills
  • Unsecured installment loans
  • Unsecured lines of credit
  • Automobile deficiencies

Can bankruptcy help with income tax debt?

The age of the tax debt and the date the tax returns were filed usually determines whether an individual can discharge his or her tax debt. Also, a Chapter 13 bankruptcy may be able to help debtors repay back taxes owed that cannot be discharged in a Chapter 7.

What is the cost of filing a Chapter 7 or Chapter 13 bankruptcy?

The U.S. Bankruptcy Court will require the debtor to pay a filing fee upon the filing of a bankruptcy petition. A Chapter 7 filing fee is $335. A Chapter 13 filing fee is $310. If a debtor uses an attorney to assist him or her in filing bankruptcy, the attorney fees vary from law firm to law firm. At our office, the attorney fees vary depending on the complexity of the case. No attorney fees are paid up front in our Chapter 13 cases.

How can Hoglund Law help?

At our law firm, we offer you a free initial consultation with an attorney at a location nearest you. We help analyze your financial situation and advise you as to whether the filing of a bankruptcy petition will help you. Our office has the experience and expertise to help you along the way.

How are attorney fees paid?

Attorney fees in a Chapter 13 are paid through the monthly payments made to the Chapter 13 trustee. Attorney fees in a Chapter 7 can be paid in one of three ways. Before filing the case, clients can pay all the attorney fees with a lump sum payment, make monthly payments to our office until the attorney fee balance is paid, or make arrangements with a third party (such as a parent, family member or friend) to guaranty the payment of the attorney fees in low monthly payments. A third party guaranty allows our firm to file the Chapter 7 without having the attorney fees paid in full before filing the case.

What information do I need to bring to an appointment?

No information is required, but it is helpful to bring the following:

  • Monthly budget
  • List of creditors (along with addresses) and amounts owed
  • Previous two years’ state and federal tax returns and year-to-date gross income
  • Your two most recent pay stubs or proof of other income you receive such as Social Security/Disability, pension or unemployment
  • Any summons, garnishments, judgments or other similar documents
  • Foreclosure or sheriff sale notice

What happens after I file?

About one week after case filing, the court will send you a notice of the meeting of creditors. The meeting of creditors is held approximately 30 days after you file. A Chapter 7 case typically lasts 90 days until discharge. A Chapter 13 debtor begins to make Chapter 13 payments 30 days after the filing and continues to make payments for the duration of the plan.

What is a meeting of creditors?

The meeting of creditors allows your creditors the opportunity to ask questions. However, creditors rarely appear. During the meeting of creditors, the trustee asks questions about your personal information, assets and debts. These questions are similar to those asked during the consultation with one of our attorneys. The meeting usually lasts 10 to 15 minutes.

What can I expect during the free consultation?

Our experienced attorneys will go through your assets, a budget and your debts. They will review the information and ask important questions. Finally, they will advise you on all your options concerning bankruptcy and get you ready to file in a way that best protects your interests.

Does filing bankruptcy have to be done by both husband and wife?

No. A husband or a wife can file without the other if the situation warrants only one person filing. A typical situation is when either the wife or husband is the only person responsible for the debt.

However, bankruptcy court requires both parties’ income and expenses in analyzing a debtor’s ability to qualify for Chapter 7 or Chapter 13. Also, if there is joint debt, the non-filing spouse will remain legally responsible for joint debt that is discharged by the filing spouse.

What happens to co-signers who don’t file?

Co-debtors can be protected on joint debts that are in a Chapter 13. Typically, a non-filing co-debtor will remain legally liable on joint debts after a Chapter 7

What assets are protected when I file?

The Bankruptcy Code describes what property and assets are protected. However, generally speaking, a debtor will keep his or her home (if current with the mortgage), automobile (if current), life insurance, tools used in a trade, typical household goods and retirement accounts. Also, depending in the specific case, a debtor may be able to keep boats, guns, computers, recreational vehicles and, depending on their value, other “toys.” The only way to determine what assets you can keep is to meet with one of our qualified attorneys. “Assets” are both tangible and intangible, so a thorough examination is required before your petition can be prepared.

Does filing bankruptcy put any possible future tax refunds in jeopardy?

Usually not, but sometimes a portion or all of your tax refund may be property belonging to the bankruptcy trustee. In some instances, a debtor loses the right to a tax refund for the year he or she files the bankruptcy case. However, the vast majority of people keep their tax refunds.

Does filing bankruptcy put any possible future ESOP, existing 401(k) or other retirement plans in jeopardy?

No. The Bankruptcy Code allows you to protect tax qualified retirement plans. Filing for bankruptcy does not offset your future right to invest in a retirement account. For those with a current 401k, the debtor will keep the 401k because the Supreme Court has ruled that 401k accounts are not property of the bankruptcy estate. Therefore, a debtor can discharge debt and keep his or her 401k.

A debtor may have other types of retirement accounts. Most ERISA-qualified retirement plans are protected. A debtor is best advised to discuss the effects of bankruptcy on his or her retirement account with one of our qualified attorneys.

Do notices of bankruptcy get posted in local newspapers?

Usually not. Some county newspapers outside the metro area do report bankruptcy, but these are very few. Filing for bankruptcy is a public filing; however, a consumer bankruptcy typically does not get published in the newspaper. On the other hand, businesses that file for bankruptcy protection typically are published in the newspaper.

Why file bankruptcy?

Filing bankruptcy gives you immediate financial and emotional relief. Approximately one million people or businesses file bankruptcy annually. Bankruptcy is a powerful tool to provide debt relief to those who need protection. While bankruptcy may carry a perceived negative public perception, it allows people the opportunity to remove the stress of overbearing debt problems and to get a fresh start with their lives.

Bankruptcy plays an important role in society. It relieves consumers of debts, thus enabling the consumer to live life more comfortably and to contribute to society’s economic and credit systems.

What can I expect in the next few months?

Whether you are filing a Chapter 7 or Chapter 13, the next few months will be similar in procedure. You retained our law firm’s services by paying money toward the court filing fee. Once retained, you can direct all creditor calls to our law firm. In most instances this will ease the harassing phone calls. However, you are not protected from collection efforts until the case is filed.

We will prepare the bankruptcy petition once our firm receives all the information and the filing fee from you. The information needs to be thorough, accurate, and complete. There can be no errors, omissions or misstatements. You are required to review and then sign the petition schedules prior to filing with the court. If we mail the petition to you, please return the petition as soon as possible so we can get the case filed and provide you with the protection of the Bankruptcy Court.

The Bankruptcy Court will send you a notice of the meeting of creditors about seven to 10 days after your case is filed. There is a lot of information contained in this notice; please thoroughly read it. The notice will specify the date, time and location of the meeting of creditors (approximately 30 days after your case is filed). You must attend the meeting of creditors. You should arrive 25 to 30 minutes before your scheduled hearing time.

The Meeting of Creditors is a relatively painless hearing. One of our attorneys will be with you at the hearing. The hearing is neither in a courtroom nor in front of a judge. The Meeting of Creditors is held before a trustee and will last approximately 10-15 minutes. The trustee will ask questions about your assets, debts and background information. The trustee will look back at what you have done before filing your bankruptcy case. Trustees can look back two to six years at your past transactions. You need to bring a picture I.D. and verification of a social security number. In addition, you will need to bring your most recent pay stub and bank statements from all bank accounts, showing the balance on the date your case was filed. Failure to bring these items could cause the trustee to file a motion to dismiss your bankruptcy case. If you filed a Chapter 13, you will need to mail your first payment in certified funds to the Trustee’s post office box.

If you filed a Chapter 7, the next step is to complete the debtor education course and to wait 60 days until you receive your discharge notice. If you filed a Chapter 13, you will have to make monthly payments to the Chapter 13 office for the duration of your plan and then receive a discharge.

What does bankruptcy do to my credit?

The credit bureaus will report your bankruptcy filing on your credit report for no more than 10 years from filing date of the bankruptcy petition. However, keep in mind that what you do after your bankruptcy will determine your credit score. You will want to rebuild your credit score as fast as possible.

Bankruptcy will damage your credit if you already have stellar credit. On the other hand, if your credit score is already low, a bankruptcy will not make your credit much worse than it already is, especially in a Chapter 7 case. Your credit can improve much faster after a discharge in bankruptcy than prior to filing for bankruptcy because your debt has been eliminated. And, you actually become less of a risk to the credit industry because you are now debt free.

There can be items on your credit report worse than bankruptcy. Tax liens and judgments can be more alarming to a credit reviewer than a bankruptcy. A tax lien or judgment is a red flag to a lender. However, once your debts are eliminated, you sometimes can take steps to clean your credit report and to begin to rebuild your credit. Therefore, a bankruptcy sometimes can improve an individual’s credit rating, rather than damage it, if the correct steps are taken after a bankruptcy.

How can I rebuild my credit?

The key to your future purchasing power after a bankruptcy discharge will be your credit rating. The way you rebuild your credit greatly will influence whether your rating remains low, increases slowly over time or increases rapidly over time.

The best starting point for the repair process is your credit report itself. The three credit reporting agencies in this country are:

  • Experian (1-888-EXPERIAN or www.experian.com)
  • Equifax (1-800-685-1111 or www.equifax.com)
  • TransUnion (1-800-916-8800 or www.tuc.com)

Your credit report tells you what information prospective creditors will see when you apply for credit. Potential employers and some auto insurance companies also use credit reports, so your report should be as accurate as possible.

Starting March 1, 2005, federal law entitles you to one free copy of your credit report annually. You can obtain this free credit report over the Internet at www.annualcreditreport.com or by telephone at 877-322-8228. An annual review of your credit report will help you determine its accuracy. If you find any errors, write to the credit bureau from which you received the report and provide correct information. Follow up in a couple of months to make sure the bureau has corrected the information. If you dispute something in writing, the credit bureau has to check the information, and it will correct the report if its investigation proves you were right.

The credit bureau may not accurately reflect your most recent discharge; therefore, you should send the bureau a copy of your discharge notice and the schedules of creditors. Furthermore, you may want to inform the credit bureau of the following information (the credit bureau does not have to add this information but often will):

  • Current employment
  • Current residence
  • Current phone number
  • Date of birth
  • Checking account number

Another strategy for building your credit record is to make sure everyone you pay on time reports this information to the credit bureau. You may improve your score by asking your creditors to report timely payments. Creditors are not required to report your payment history, but any reported information must be accurate.

Once you have established that the current information on your report is as accurate as possible, your next goal is to improve your score as much as possible with new credit references. A methodical approach to credit will yield the best results.

First, establish a realistic household budget so you have a clear idea of how much debt payment your budget can handle. A budget allows you to realize how much money is coming in and how much money is going out each month. A sound budget is key to rebuilding your credit.

Second, begin to obtain credit. Be disciplined with credit after a bankruptcy discharge. Demonstrate to creditors that you are now paying your bills in a timely manner when they are due. Evaluate the credit offers you receive based on the type of credit, interest rate, grace period, annual fees and any other terms so you know your exact obligations. This approach is essential because your application process should remain focused. If you apply to a large number of credit cards at once, creditors who would otherwise approve you may reject you. Be selective!

A starting point in obtaining credit is getting one credit card. You may only qualify for a secured card, but even so, it can rebuild your credit. Once you have a credit card, make a small purchase each month (e.g. $25) and pay it off when the bill arrives. When you pay the balance due and avoid interest charges by not carrying balances over month to month, you show prospective creditors that you can manage your account.

Once you have established yourself with the one card, you might be anxious to apply for many more cards. Don’t get too carried away. Ideally, you should carry one or two bank credit cards, possibly one department store card and one gasoline card. Try not to charge everything on your bank credit card and not to use your department or gasoline card. When creditors look in your credit file, they want to see that you can handle more than one credit account at a time. Do not build up interest charges on these cards. Rather, use them and pay the bill in full.

Another method to rebuilding credit is to apply for a small loan at your bank. After you’ve used a credit card for a time, you may decide to obtain a small consumer loan. Paying that loan on time will improve your credit score. Make sure you are on time with all of your payments, whether for a car loan, home loan, student loan or credit card. You must pay all your bills on time after a bankruptcy to build your credit effectively.

If you follow the steps outlined above, you can rebuild your credit within one to three years on average. If you aggressively build your credit after a discharge, you may be eligible for a home mortgage within three to four years.

Other sources for information in credit repair

  1. “The Guerrilla Guide to Credit Repair: How to Find Out What’s Wrong With Your Credit Rating And How to Fix It” by Todd Bierman and Nathaniel Wice
  2. “On Your Own For The First Time” by Jeff Bowers
  3. “Repair Your Own Credit and Deal With Debt” by Brette McWhorter Sember
  4. “The Credit Repair Kit” by John Ventura
  5. “The No-Nonsense Credit Manual: How to Repair Your Credit Profile, Manage Personal Debts and Get the Right Home Loan or Car Lease” by Shaun Aghill
  6. ‘The Complete Guide to Credit Repair” by Bill Kelly, Jr.
  7. “The Insider’s Guide to Manage Your Credit: How to Establish, Maintain, Repair, and Protect Your Credit” by Deborah McNaughton
  8. “Guaranteed Credit: A Time-Tested Program Guaranteed to Provide Clear, Step-By-Step Information on How to Repair, Restore and Rebuild Your Credit” by Arnold S. Goldstein
  9. “Getting Out of Debt: Repair Bad Credit and Restore Your Finances!” by Rich Mintzer
  10. “Repair Your Credit” by George Williams II

What debts are not erased by bankruptcy?

The following debts are not erased in either Chapter 7 or Chapter 13. If you file for Chapter 7, these will remain when your case is over. If you file for Chapter 13, these debts will have to be paid in full during your plan. If they are not, the balance will remain at the end of your case. The Bankruptcy Code states that certain types of debt are not discharged, which includes:

  1. Debts you forgot to list in your bankruptcy papers may not be discharged
  2. Child support and alimony
  3. Debts for personal injury or death caused by your intoxicated driving
  4. Student loans, unless it would be an undue hardship for you to repay
  5. Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution
  6. Debts you incurred on the basis of fraud, such as lying on a credit application
  7. Credit purchases of $1,150 or more of luxury goods or services made within 60 days of filing
  8. Debts from embezzlement, larceny or breach of trust
  9. Mutual debt incurred through a divorce decree.
  10. Recent income tax debts and some other tax debts. This is a complicated area of the bankruptcy law, and you should consult with one of our attorneys to discuss your tax debts. You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all these five conditions are met:

    1. The IRS has not recorded a tax lien against your property. (If all other conditions are met, the taxes may be discharged. However, even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect.)
    2. You didn’t file a fraudulent return or try to evade paying taxes.
    3. The liability is for a tax return (not a substitute return) actually filed at least two years before you filed for bankruptcy.
    4. The tax was due at least three years ago.
    5. The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least 249 days (eight months) before you file for bankruptcy. (11 U.S.C. 523(a)(1) and (7).

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With more than 40 years of combined experience, the attorneys of Hoglund, Chwialkowski & Mrozik have helped thousands of Minnesota citizens file for bankruptcy. We have a convenient office location close to you, with offices across the Twin Cities, St. Cloud, Duluth, Rochester and Mankato. Contact us today for a free consultation.