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American Consumer Credit Counseling is a
national leading provider of consumer financial
education and debt management services.
Throughout the year our company provides many
educational workshops within the community that
covers a wide range of financial topics.
It is our mission to provide individuals with the
necessary information so they can make better
financial decisions in the future.
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This educational study course on Bankruptcy
has been developed specifically to educate
individuals within the community on:
What to Know About Bankruptcy
The Types of Bankruptcies
How Bankruptcy Affects You
Your Options in Bankruptcy
Consequences of Unpaid Debts
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What is Bankruptcy?
Bankruptcy is a method of eliminating unsecured,
secured and other debts through the legal system,
therefore giving a consumer a fresh start in life.
Bankruptcy, in many cases, means that you walk away
from the current debt you owe your creditors.
Generally, there are two different types of personal
bankruptcy that an individual may use. They are:
Chapter 7 bankruptcy
Chapter 13 bankruptcy
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What is Chapter 7 Bankruptcy?
Chapter 7 is the full liquidation of debts more commonly
known as “straight” Bankruptcy. This is the most
common bankruptcy form that an individual will file.
Chapter 7 is only for individuals, not businesses or
partnerships.
Under Chapter 7, a trustee is appointed from the court to
collect and sell, if economically feasible, all property you
own that is not otherwise exempt, from liquidation.
Most individuals file Chapter 7 to completely eliminate
large credit card debt, personal loans and other
unsecured debts.
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Who qualifies for Chapter 7 Bankruptcy?
1) You must reside, or have a domicile, or a place of
business, or real property in the United States. Within
the last 6 years you could have not been granted a
discharge through Chapter 7.
2) Within the last 6 years you could not have completed
a Chapter 13 bankruptcy plan.
3) Within the last 180 days you couldn’t have had a
Chapter 7 or Chapter 13 dismissed for cause by the
courts.
4) If an individual has disposable income after paying
monthly living expenses, the courts will usually not grant
a Chapter 7 discharge.
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What should I do if my Chapter 7 is not
granted?
Our best advice to you is to immediately seek the help of
a non-profit consumer credit counseling agency.
A non-profit consumer credit counseling agency in most
cases, can help you re-establish payment plans with
those creditors that you tried to file bankruptcy against.
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What type of debts can be discharged in a
Chapter 7 bankruptcy?
In a Chapter 7 bankruptcy you can discharge almost any
consumer debt such as:
All credit card debt Auto Repossession
Personal loans (banks or credit unions) Charge-off accounts
Finance companies Collection accounts
Automobiles (purchased or leased) Eviction (rent) debt
Mortgage debt Old utility bills
Other motor vehicles Medical bills
Some student loans may qualify Dental bills
Some past-due taxes may qualify Attorney bills
Creditor lawsuits CPA bills
Friday, March 04, 2011 8
What is a discharge?
The filing of a chapter 7 bankruptcy petition is designed
to result in a discharge of most, if not all, of the debts
you listed on your bankruptcy schedules.
Certain debts such as a mortgage or car loan will
continue to be paid by you if you elect to retain the
asset. A discharge is a court order that says you do not
have to repay your debts.
Creditors cannot ask you to repay any debts which have
been discharged in bankruptcy. You can only receive a
chapter 7 bankruptcy discharge once every six (6) years.
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Are there debts that I cannot discharge?
Yes. You should first understand that not all debts are
dischargeable in a bankruptcy case.
Examples of debts that are not able to be discharged
are:
Most state and federal taxes
Child support
Alimony support
Most student loans
Criminal fines, restitution or penalties
Debts obtained through fraud or deception
Personal injury debts
Credit card charges made within 40 days of filing
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What are the potential effects of a discharge?
The fact that you filed bankruptcy will appear on your
credit report for as long as 10 years. Thus, filing a
bankruptcy petition may affect your ability to obtain credit
in the future.
Generally speaking you may not be excused from
repaying any debts that were not listed on your
bankruptcy schedules or that you incurred after you filed
bankruptcy.
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In a bankruptcy do I have to give up all my
personal property?
No. Federal and state laws provide exemptions for your
property.
Exempted property is property such as household
goods, furniture, clothes, and personal belongings,
which you may keep even if you file bankruptcy.
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What are the effects of reaffirming a debt?
After you file your bankruptcy petition to the courts, a
creditor (that you owe) may ask you to voluntary reaffirm
a certain debt or you may seek to do so, on your own.
Reaffirming a debt means that you will sign and file a
legally enforceable document with the court, which
states that you promise to repay all or a portion of the
debt that may otherwise have been discharged in your
bankruptcy case.
Once reaffirmed, the debt becomes a renewed
obligation, which survives bankruptcy.
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What is Chapter 13 Bankruptcy?
Chapter 13 generally permits individuals to keep their
property by repaying creditors out of their future income.
Each chapter 13 debtor (you) submits a plan of
repayment for 3 to 5 years, which must be approved by
the bankruptcy court.
Chapter 13 is only available to individuals with regular
income whose debts do not exceed $1,077,000
($269,250 in unsecured debts and $807,750 in secured
debts).
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How do I determine if a Chapter 13 is best for
me?
Chapter 13 is best for people who have too much
disposable income and also have the kind of consumer
debt (like student loans, taxes, etc.) that cannot be
discharged in a Chapter 7.
People that are behind in their mortgage payments and
want to avoid foreclosure on their property may also file
a Chapter 13.
Chapter 13 allows a person to make up past due
payments over a specific time period, therefore
reinstating the creditors original agreement.
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Will a bankruptcy filing, stop any collection or
legal action against me?
Yes. A bankruptcy filing under federal law imposes an
automatic stay, which stops your creditors from
collecting on the debts and/or obtaining a court judgment
while your bankruptcy is pending and awaiting approval
of a discharge.
For example: If one of your creditors serves you with a
lawsuit the bankruptcy filing will stop the lawsuit.
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Will bankruptcy stop wage garnishments or
repossession from creditors?
Yes. Creditors must stop any wage garnishments or
repossession efforts under a bankruptcy filing.
A creditor can only proceed against you once your
bankruptcy is over and that specific debt was not
discharged in your bankruptcy.
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When do my creditors get notified of my
bankruptcy filing?
Once your bankruptcy petition has been filed with the
courts, the bankruptcy court clerk will mail a notice within
10 to 14 days of your bankruptcy filing on your behalf to
all your creditors, which will impose an automatic stay.
Therefore, your creditors must stop all collection efforts
on the debt. If a creditor does not stop collection efforts
the courts can impose sanctions against them.
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How long does a bankruptcy take to be
completed?
A Chapter 7 bankruptcy can take anywhere from 3 to 5
months to be fully discharged.
A Chapter 13 bankruptcy can take anywhere from 3 to 5
years to be fully completed. A Chapter 13 takes longer
because you are setting up re-payments plans with your
creditors.
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Once I file a bankruptcy petition do I continue
paying my creditors?
No. If you plan to reaffirm your auto loan and mortgage
loan and keep it out of your bankruptcy you need to
continue making those monthly payments on time.
You also need to continue making your monthly
payments on your daily living expenses; rent, utilities,
telephone, gasoline, insurance, etc.
If you plan to include all your credit card debt in your
bankruptcy to be discharged, you can stop making those
payments.
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Should I hire a bankruptcy attorney or a
paralegal to prepare my bankruptcy?
Everyone’s situation is different. As a rule of thumb, you
should hire a bankruptcy attorney if you:
Own a home
Are self employed
Have substantial amount of assets
Receiving a settlement from a lawsuit
Have over $15,000 of cash in savings,
stocks, bonds, mutual funds, etc.
Receiving an inheritance
Friday, March 04, 2011 21
Will I lose my car or home when I file
bankruptcy?
If you do not include these debts into your bankruptcy for
discharge, you must reaffirm these debts and keep them
out of your bankruptcy.
If you plan to keep them out, you must continue to make
monthly payments on time to the creditors.
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Do I have to include all my credit cards in my
bankruptcy?
No. You can reaffirm a credit card debt if you have a
balance on it. In most cases the credit card issuer will
agree to keep it open for you as long as you continue to
make the agreed minimum monthly payment as required
on the monthly statement.
If you have a credit card with a zero balance on it you
will not include that credit card in your bankruptcy filing.
Friday, March 04, 2011 23
Can I charge on my credit cards before I file
bankruptcy?
No. If you charge or take cash advances within 90 days
on credit cards that you plan to include in your
bankruptcy, you may be liable for those charges and
cash advances and the courts may not discharge those
credit cards.
In addition, the courts may fine you under the basis of
fraud. You should seek legal advice from a bankruptcy
attorney if you have recently incurred large amounts of
debt on credit cards you plan to bankruptcy.
Friday, March 04, 2011 24
Who will know about my bankruptcy filing?
All bankruptcy filings are public record. Your close
friends, your family members, your boss, your co-
workers, etc. will not find out about your bankruptcy filing
unless you tell them.
Bankruptcy filings are not usually published in the
newspaper. The only people who will know about your
filing are the courts and your creditors.
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Will I lose my job if I file bankruptcy?
No. Your employer cannot fire you for filing bankruptcy. It
is against federal law for an employer to discriminate
against an employee for filing personal bankruptcy.
Your bankruptcy filing is none of your employer’s
business.
Friday, March 04, 2011 26
Will a bankruptcy filing destroy my credit?
If bankruptcy is your only option, your credit is already
damaged due to late or non payments to your creditors.
A bankruptcy can stay on your credit report for up to 10
years.
This does not mean that your life is over. Once your
bankruptcy has been discharged, you will receive credit
card offers in the mail that will help you reestablish your
credit.
Most people can rebuild their credit within 2 years from
the time their bankruptcy is discharged.
Friday, March 04, 2011 27
Once I file my bankruptcy petition, what
happens next?
Within 30 to 45 days you will be required to attend a
hearing of creditors in front of a court-appointed trustee.
At this hearing, the creditors will have an opportunity to
ask you questions about merchandise that you
purchased on credit with them. In most cases if you do
not have assets, creditors will not appear at this hearing.
When you appear for this hearing usually there will be a
lot of other people in the room, all there for the same
reason as you. Therefore, there is no need to be
embarrassed.
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Once I file my bankruptcy petition, what
happens next?
Continued…
In most cases, if your petition was filled out correctly by
your attorney or paralegal the trustee should have few
questions.
If your petition passes the trustee’s questioning, your
bankruptcy will be normally discharged within 3 to 4
months from the time you filed.
Friday, March 04, 2011 29
How does bankruptcy affect a co-signer on a
debt?
If the debt qualifies by the courts to be discharged, then
the co-signer on the debt will become primarily
responsible to pay the debt.
The person filing the bankruptcy should list the co-signer
as a creditor in their bankruptcy petition.
For example: A husband and wife separate and divorce.
The wife decides to file bankruptcy on several credit
cards that are joint accounts with both their names on it.
If the husband does not participate in the bankruptcy
filing then he will become solely responsible for those
joint accounts once the wife’s bankruptcy has been
discharged.
Friday, March 04, 2011 30
Can I go to jail if I file bankruptcy?
No. There is no such thing as a debtor’s prison in the
United States. Every consumer has the right to file a
bankruptcy petition every 6 years.
Friday, March 04, 2011 31
Can a bankruptcy remove a lien?
Under some circumstances, your attorney can file a
special motion to remove the lien.
The bankruptcy court will have to issue a court order to
remove the lien.
This procedure is complicated and you need a
bankruptcy attorney who understands this area of the
law.
Friday, March 04, 2011 32
Will a bankruptcy filing stop a home
foreclosure?
Yes. You need to keep in mind that a home is an asset
secured by a deed of trust.
The mortgage company has the right to petition the court
for relief from the “automatic stay” provision. In most
cases, an individual may be able to prolong the
foreclosure until they have received a discharge from the
bankruptcy court.
Friday, March 04, 2011 33
OTHER BANKRUPTCY OPTIONS
Besides chapter 7 and chapter 13 bankruptcy there are
two additional choices within the Bankruptcy Code. They
are:
Chapter 11 bankruptcy
Chapter 12 bankruptcy
Friday, March 04, 2011 34
What is Chapter 11 Bankruptcy?
Chapter 11 is the reorganization chapter most commonly
used by businesses, but it is sometimes available to
individuals.
The debtor submits a plan of reorganization and
creditors vote on whether to accept or reject a plan,
which also must be approved by the court.
While the debtor normally remains in control of the
assets, the court can order the appointment of a trustee
to take possession and control of the business.
Friday, March 04, 2011 35
What is Chapter 12 Bankruptcy?
Chapter 12 offers bankruptcy relief to those who qualify
as family farmers.
Family farmers must propose a plan to repay their
creditors over a three to five year period and the court
must approve it.
Plan payments are made through a chapter 12 trustee
who also monitors the debtor’s farming operations during
the course of completion.
Friday, March 04, 2011 36
What types of debts can be affected if unpaid?
When financial problems arise, consumers need to
understand the consequences of the different type of
debts and how they can be affected if not paid.
There are 7 different types of debts. They are:
Secured debts
Unsecured debts
Foreclosure
Eviction
Auto repossession
Utility shut-offs
Lawsuits
Friday, March 04, 2011 37
What are the consequences of secured debts?
Most secured debts are backed by collateral. Collateral is
property that can be seized in the event of a debt
payment delinquency.
Examples:
Secured credit cards. If you don’t pay on your secured
credit card the card issuer who has control of your
collateral (savings deposit) can seize your savings
deposit and suspend your privileges to charge on that
card.
Friday, March 04, 2011 38
What are the consequences of secured debts?
Continued…
Home mortgage. If you should fall behind on your
mortgage payments, the mortgage lender can seize your
home (foreclosure), leaving you with nothing. All current
and future equity accumulated in the property would now
belong to the mortgage lender.
Automobile Loan. If you should fall behind on your car
payments, the bank or financial institution has the right
to legally repossess your car without your permission. If
the car is repossessed, the car is now the property of the
bank or financial institution that holds title.
Friday, March 04, 2011 39
What are the consequences of unsecured
debts?
Banks and other financial institutions that provide
unsecured credit to consumers do not have the legal
power that secured lenders have.
Lenders that cannot collect on unsecured delinquent
debt, must first file and obtain a court judgment before
they can seize money or property.
Unsecured credit cards are by far the hardest to collect
on. Most collection agencies generally will make threats
to sue for monies or garnish wages for monies owed, but
in most cases these threats are not carried out, because
litigation is a costly and timely process.
Friday, March 04, 2011 40
What are the consequences of a foreclosure?
If you miss one or two payments on your mortgage, your
lender will send you a letter and in most cases call you
and ask you to send in the missed mortgage payments
plus late fees.
If you fall behind 60 to 90 days on your monthly
mortgage payments, your lender will send you a written
notice in the mail, which is referred to as the Notice of
Default. This Notice of Default is the first step in the
foreclosure process.
Friday, March 04, 2011 41
What are the consequences of a foreclosure?
Continued…
If you do not make up the missed mortgage payments
and late fees, the lender will send another written notice
in the mail. This is referred to as the Notice of
Acceleration. The homeowner at this point must pay the
full mortgage off to avoid a foreclosure sale by the lender.
If the full mortgage amount is not paid in full, a court
summons will be delivered to the property as well as a
Notice of Sale. This Notice of Sale will outline the time
and date that the property will be foreclosed on.
Friday, March 04, 2011 42
What are the consequences of an eviction?
Being evicted from a rented apartment, condo or home
can be disruptive and dangerous, knowing that you could
be homeless should you have no where else to live.
If you do not pay your rent, the first step that your
landlord will take to start the eviction is to send you (the
renter) a written Notice to Quit or Notice to Vacate.
These written notices basically tell you to either pay the
rent or vacate the premises within a specific time.
If you do not pay the past-due rent within the Notice to
Quit time frame, the landlord will seek and file a court
order to evict you from the premises.
Friday, March 04, 2011 43
What are the consequences of an eviction?
Continued…
If you choose to not appear in court, the court will
automatically enter a default judgment against you and
you will be evicted from the premises, in most cases by
a sheriff or another law enforcement person.
When you are forced to move against your will, you are
considered a refugee. Your belongings can be removed
and put on the streets.
In addition to being evicted, the landlord can file suit
against you for all past-due rent, plus court fees and
damages.
Friday, March 04, 2011 44
What are the consequences of an automobile
repossession?
If you miss one payment a lender must send you a
Notice of Default letter giving you an opportunity to
bring the loan current.
If payments are not brought current, a lender can
schedule your car for repossession as well as place a
lien on your car and sell it in order to pay back the
money you borrowed.
Repossession means that a “repo man” can take your
car at anytime without your consent, open your car and
drive it away.
Friday, March 04, 2011 45
What are the consequences of an automobile
repossession?
Continued…
When your repossessed car is sold at auction, in most
cases a Deficiency Balance will occur. At auction sales,
auto dealers bid on repossessed cars at drastically
reduced prices.
For example: Your car may be valued at $10,000, but
through an auction sale the lender sells it to an auto
dealer for $6,000. Immediately, your repossessed car
now has a $4,000 Deficiency Balance which you must
pay to the lender.
Friday, March 04, 2011 46
What are the consequences of an automobile
repossession?
Continued…
In addition to the $4,000 Deficiency Balance, you will owe
the lender for repossession fees, storing and all auction
cost for the sale of your repossessed car.
Friday, March 04, 2011 47
What are the consequences of a utility shut-
off?
If you don’t pay your bill, utility companies don’t send you
to collections, they simply shut off your service.
By law a publicly owned utility company must send you a
termination notice, stating that if you don’t pay the
amount due your service will be turned-off.
Privately owned utility companies do not have to send
you a termination notice and they can turn off your
service due to non-payment at anytime without warning.
Friday, March 04, 2011 48
What are the consequences of a utility shut-
off?
Continued…
Whether you’re dealing with a publicly or privately owned
utility company, getting your utility service turned back on
can be costly.
You will have to pay the past due amount in full, plus late
charges and a re-installment fee, and in some cases, a
security deposit.
Some utility companies may allow you to make monthly
installment payments over time to make up past-due
bills.
Friday, March 04, 2011 49
What are the consequences of a lawsuit?
If you are a consumer who had unsecured credit
extended to you and you where unable to make the
monthly payment obligations, the lender has a legal right
to file suit in a court of law against you in order to collect
on that unsecured debt.
If a lender successfully files suit and wins, it can result in
the following:
Judgment Liens
Wage Garnishment and
Bank Account Seizures
Friday, March 04, 2011 50
Judgment Liens:
A judgment lien allows a lender to place a lien against
your property (home, car, boat, etc.). This lien prohibits
the owner of the property to sell or re-finance until the
lien is cleared (debt is settled).
Once a judgment lien has been won in court, the lender
has the right to inspect and examine your property. The
lender must further file a formal request in court to seize
or sell the property.
The law states that certain possessions, like household
items are exempt from seizure. You should contact an
attorney in your state for legal advice on judgment liens
and what can be seized.
Friday, March 04, 2011 51
Wage Garnishment and Bank Account
Seizures:
If a lender successfully files suit and obtains a court
order, that lender may garnish up to 25% of your take-
home pay without your consent.
A lender can take more of your take-home pay if it
involves unpaid child support. A court order wage
garnishment can be served directly to your employer or
to your bank.
Note: Not all states allow wage garnishment. Speak to
an attorney in your state on wage garnishment and
whether it’s enforceable in your state.
Friday, March 04, 2011 52
This concludes our educational study
course on Bankruptcy and Unpaid Debts.
Thank you for attending!
Friday, March 04, 2011 53
Corporate Address:
American Consumer Credit Counseling, Inc.
130 Rumford Avenue, Suite 202
Newton, MA 02466
Contact Information:
Toll Free: 1-800-769-3571
Main: 1-617-559-5700
Fax: 1-617-244-1116
Email: sms@consumercredit.com
Web Address: www.consumercredit.com
Friday, March 04, 2011 54
