FAQs

Disclaimer: Take into consideration the following information may change after October 17th, 2005.

Bankruptcy

What is bankruptcy?
Bankruptcy is a legal way of getting relief from most debts. Chapter 7 is the most common form of bankruptcy. It involves the filing of a petition in Bankruptcy Court. Your creditors are then notified and a hearing is held that you must attend. After that, the Bankruptcy Court will enter an order that you are legally free from dischargeable debts. Chapter 13 is a bankruptcy that discharges debts after completion of a 3 to 5 year repayment plan.

What is a discharge?
A discharge is a court order that says you do not have to repay your debts. A discharge can be denied if you, for example: destroy or conceal property; destroy, conceal or falsify records; or make a false oath. Creditors cannot ask you to pay a discharged debt.

Are there any debts which I cannot discharge through bankruptcy?
Certain types of debts are not subject to discharge. Debts arising from alimony or child support, debts for fines or restitution for a crime, and a claim for personal injury caused by drunk driving are not discharged under bankruptcy. Most taxes and student loans also are not discharged. Under a Chapter 7 the following debts may not be dischargeable: 1) debts created as a willful and malicious injury and from crimes such as theft or embezzlement; 2) a debt created by giving a false loan application; 3) some debts incurred by a divorce decree or separation agreement. A creditor who wishes to object to discharge of a debt must file a specific complaint by a certain date or the debt is included in the debt that is discharged.

Can I lose my home, my car, or my furniture if I file bankruptcy?
Bankruptcy law allows you to keep items that are paid for such as furniture and personal belongings as long as the total resale value of those items is within the allowed amount of exempt property. This limit is $4000.00 per person or $8000.00 per married couple filing jointly. Additional property may be kept for specific purposes such as tools of the trade, books or professional equipment, retirement accounts, and government benefit payments. A home may be kept in Chapter 7 if the equity is within the homestead exemption limit of $5000.00 (or $7500.00 for a married couple).

If my house, car or other property is secured by a creditor, does bankruptcy permit me to keep those things and release the debt?
Bankruptcy does not discharge a creditor's lien on property. Even if you file bankruptcy a secured creditor is entitled to receive either the collateral or payment on the loan. In a Chapter 7 case, if you want to keep the property, you may either choose to reaffirm the debt or to redeem the property by paying its fair market value. Reaffirming a debt means that you sign and file a legally enforceable document with the court, which states that you promise to repay all, or a portion of the debt. If you reaffirm a debt and fail to make the required payments, the creditor can recover the secured property and you would still owe any remaining debt. If you do not want to keep the property, you can return it to the creditor and not have to repay the debt. Redeeming a debt means you must pay the value of the property to the creditor in one lump sum payment.

Does my personal bankruptcy release my co-signer or guarantor of a debt?
Chapter 7 does not protect a person who cosigns a debt with you. To protect the cosigner you must repay the debt after the Chapter 7 bankruptcy is completed. Chapter 13 includes protection for a cosigner if the Chapter 13 repayment plan provides full repayment of the cosigned loan.

What happens to a garnishment or a creditor's lawsuit once I file bankruptcy?
Immediately upon the filing of the bankruptcy petition, all creditors must stop any collections against you. The Bankruptcy Court issues what is called an "automatic stay. " This means that by order of the Bankruptcy Court all garnishments must cease and creditors may not take any further action on any lawsuit pending against you. The Bankruptcy also stops repossessions, foreclosures, harassing telephone calls and mail collections.

What if I want to pay creditors something, but I just can not afford to pay them all that I owe?
For relatively minor debt problems there are a number of credit management companies that deal with credit card debts and work out voluntary repayment plans outside of bankruptcy. If all creditors won't agree to do this, you can file a Chapter 13 bankruptcy. This allows you to pay all your creditors a portion of what you owe them in one weekly or monthly payment that you can afford. Chapter 13 bankruptcy is best suited to people who have a regular source of income but need to reorganize their debt to make it more affordable. Payments under a Chapter 13 plan last between 3 and 5 years. When you complete the payment plan the Bankruptcy Court issues a discharge order saying all remaining debt is no longer owed by you. Long term debt such as house loans and child support are not discharged and must be resumed after the Chapter 13 plan ends.

Will filing bankruptcy prevent my getting a student loan?
Student loans are usually guaranteed by the federal government and are not based on the credit of the student. This type of student loan will not require a credit report and may be obtained after a Chapter 7 case is completed. If a student loan is needed during a Chapter 13 repayment plan a letter from the Chapter 13 trustee is needed prior to obtaining the loan. Student loans for children to go to school are normally signed only by the child and are usually not cosigned by the parent so these loans are not affected by the parent’s bankruptcy case.

Credit, Repossession & Judgments

Much of the following information was taken from a web site provided by the US Government's Federal Trade Commission. That site contains a lengthy and helpful discussion of many aspects of creditor rights and practices. Information from that site is generally accurate but differences in state laws may make certain portions not applicable for Bankruptcy or collection cases filed in the state of Tennessee.

To get a better understanding of your current financial situation, it is a good idea to periodically review your credit report.

Will a bankruptcy hurt the credit of my cosigner?
Cosigned loans may be repaid after a Chapter 7 is completed so the cosigner’s credit is not damaged. Often the loan will be left solely in the name of the cosigner and payment arrangements are made informally between the cosigner and the person filing bankruptcy so that the payments are made on time. The bankruptcy case should not be reported on the cosigner’s credit report in any way that suggests the cosigner is filing for bankruptcy. Federal law requires that any errors on the credit report be corrected if you send a dispute letter to the credit reporting agency who must respond within a reasonable time and make corrections. A Chapter 13 payment plan may pay a cosigned loan in full with the contract rate of interest. This normally satisfies the lender such that no harm is done to the cosigner’s credit.

How do I re-establish credit after a bankruptcy case?
After completing a bankruptcy case it may be useful to obtain some credit. No law restricts the availability of credit so each lender may consider the bankruptcy filing, the credit history as shown on the credit report, and other indications of credit worthiness in deciding whether to make a new loan. Each lender is different so it pays to shop around and compare loan terms before making a new loan.

A Chapter 7 bankruptcy is shown on a credit report for a period of ten years. Some credit is available immediately after the Chapter 7 case is discharged and frequently credit offers are sent by mail for credit cards and car loans. Most auto dealerships will arrange financing of a vehicle after the Chapter 7 case is discharged. Most home loans through government backed loan programs are available two years after the Chapter 7 case is discharged.

A Chapter 13 repayment plan lasts between 3 and 5 years and the court will normally limit the use of credit by court order while the plan is in repayment. To obtain court permission to use credit during a Chapter 13 plan requires attendance at a 2 hour credit workshop and a letter from the trustee authorizing the use of credit. Then, with the trustee's letter of approval, credit may be obtained for normal usage such as trading cars, home repairs, and home purchases. After the Chapter 13 case is completed, the credit report will show the bankruptcy filing for a total of ten years starting with the date the Chapter 13 case began. A good repayment history in the Chapter 13 case will greatly improve the availability of credit after the plan is completed. In cases where debts are completely repaid in the Chapter 13 case, the trustee will make this notation on your credit report to aid in re-establishing credit.

What is repossession?
If personal property (usually a car or furniture) is put up as collateral (security) for the payment of a debt, and the debtor falls behind in payments on the debt, the creditor may take repossession of the property. Repossession may occur at any time after a debtor falls behind in his or her payments, and no advance notice is required.

Can I avoid repossession by making the payments I have missed?
It depends on the contract. Many contracts have an acceleration clause. This means that when the debtor misses on payment all future payments become due immediately. If your contract has an acceleration clause, you must pay all the money owed to avoid repossession. However, many creditors are willing to accept the past due payments and continue the contract.

Can repossession occur even when I am current in my monthly payments?
Yes. Some contracts require the debtor to keep the collateral insured or to keep it in the state or county (this is especially true with automobiles). Repossession could occur if the debtor violates such terms of the contract.

Must the creditor go to court to repossess collateral?
That depends upon the laws of your state. Most states allow creditors to repossess collateral without going to Court. However, the creditor may not cause a breach of the peace in attempting repossession, such as breaking into a house or garage.

Can the creditor repossess goods if I try to stop him?
Not without going to Court. Repossession must be peaceful. A debtor need not hand over or even open the door to the person doing the repossession, unless it is the Sheriff carrying out a court-ordered repossession, then the debtor must cooperate.

What happens after the goods are repossessed?
After repossession, goods are usually sold to satisfy the debt. The creditor must give the debtor written notice of the time and place of the sale. The debtor can then pay the amount owed, find a buyer to purchase it, or be present at the sale to bid. The goods must be sold at a price that is commercially reasonable. If repossessed goods are sold without advance notice of sale, CONSULT A LAWYER.

What of the goods are sold for less money than I owe the creditor?
When the goods are resold, they often fail to bring a high enough price, and the debtor still owes money to the creditor after repossession. Generally, the debtor can still be sued for the amount remaining on the debt. In addition, reasonable attorney's fees and cost of repossession (if the debtor agreed to pay them in the contract) can be added to that amount.

What if the creditor does not repossess the goods, what other options might they pursue?
If the creditor feels that the money owed is more than the goods would bring at sale, or that the debtor has the means to pay, they may opt to file suit rather than repossess the goods. An unsecured creditor (one that does not have collateral securing the payment of the loan) would file suit if payments were not being made.

What are my rights if I am sued for a debt?
If you owe a debt, your creditor can sue you for the amount owed. You have the right to be notified of the creditor's lawsuit and to dispute the amount which the creditor claims you owe. If the creditor proves you owe the money, he will get a judgment against you for the debt amount plus any other expenses which your contract says you must pay. These may include interest, attorney's fees and late charges. After the creditor gets a judgment, there are several things he can do to collect.

What is a default judgment?
If you fail to appear in court as ordered by subpoena to defend this action, the court will enter in a default judgment against you and in favor of the creditor.

Once the judgment or default judgment is entered, how can the creditor then collect his money?
There are several ways in which the creditor can then proceed to collect his money. One way is to serve a garnishment order on your employer or bank. Another is to execute a judgment lien against your real estate or personal property. The creditor may seek out any assets that you may have that could satisfy the judgment against you.

What is a garnishment?
It is a court order telling your employer to deduct a part of your wages and send it to the court to pay your creditor. It can only occur after your creditor has sued you and gotten a judgment against you, and it can happen only if your earned income after taxes is more than 30 times the minimum wage.

How much of my paycheck can be garnished at one time?
It depends on your state, but generally about 25% of your TOTAL NET (after tax) earnings can be garnished. But, government benefits life AFDC (Aid for Families with Dependant Children), Social Security or Veterans benefits cannot be garnished.

How many creditors can put a garnishment on me at the same time?
Only one (1) creditor can garnish you at any given time, however, a garnishment from a creditor and a wage withholding order for child support can occur at the same time.

Can my employer fire me if they are served with a garnishment Order?
NO! You cannot be fired by your employer because of a garnishment. There are both state and federal laws to protect you.

When does a garnishment end?
A garnishment ends when the judgment with legal interest is paid or when your employment ends.

What happens if the creditor decides to go after my real or personal property?
A judgment is automatically a lien on your real estate. However, a creditor cannot apply for a writ of execution to sell your property unless the equity in your property is greater than the legally protected (exempt) amounts of equity after deduction of any mortgages or security interests.

What does equity mean?
Equity is the amount of value left in your property after subtracting what you owe to any creditors who hold mortgages or other liens from the fair market value of the property. Fair Market Value is the amount the property could be sold for today, not the amount you paid for it. If nothing is owed against the property, the equity would be the full value.

Fair Debt Collection Practices Act

Much of the following information was taken from a web site provided by the US Government's Federal Trade Commission. That site contains a lengthy and helpful discussion of many aspects of creditor rights and practices. Information from that site is generally accurate but differences in state laws may make certain portions not applicable for Bankruptcy or collection cases filed in the state of Tennessee.

What is the Fair Debt Collection Practices Act?
The Fair Debt Collection Practices Act of 1978 is a federal law enacted by Congress as part of the Consumer Credit Protection Act. Its purpose is to protect consumers from harassing and abusive debt collection methods.

Who is protected by this law?
The protected class consists of CONSUMERS who have incurred debts for personal, family or household reasons. Commercial accounts are not covered. A protected consumer includes a spouse or a parent of a child who owes money to a creditor.

Who is governed by the act?
The regulated class is made up of businesses who collect debts owed to individuals or companies other than themselves, mainly COLLECTION AGENCIES AND CREDIT BUREAUS. In addition, ATTORNEYS who regularly engage in consumer debt collection activity for clients are covered by the Act. It does not apply to finance companies or businesses trying to collect their own debts.

Are in-house collectors regulated?
NO. Collectors who are employees of the creditor company are not covered by the Act; neither are governmental agencies regulated by the Act.

Does that mean that I cannot do anything should an unregulated collector use improper tactics?
No, not entirely. If an unregulated collector uses unreasonable methods to try to collect on a debt, there may be a way to bring relief through court action. Consult legal counsel if a problem arises.

What debts are covered?
Personal, family and household debts are covered under the Act. This includes money owed for the purchase of an automobile, for medical care, or for charge accounts.

How may a debt collector contact me?
A collector may contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8:00 a.m. or after 9:00 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.

Can I stop a debt collector from contacting me?
You can stop a collector from contacting you by writing a letter to the collection agency telling them to stop. Once the collector receives your letter, they may not contact you again except to say there will be no further contact or to notify you that the debt collector intends to take some specific action.

May a debt collector contact anyone else about my debt?
If you have an attorney, the debt collector must contact the attorney, rather than you. If you do not have an attorney, a collector may contact other people, but only to find out where you live, what your phone number is, and where you work. Collectors usually are prohibited from contacting such third parties more than once. In most cases, the collector may not tell anyone other than you and your attorney that you owe money.

What must the debt collector tell me about the debt?
Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.

May a debt collector continue to contact me if I believe I do not owe the money?
A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe the money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.

What are debt collectors required to do?
They must contact you between the hours of 8:00 a.m. and 9:00 p.m. They must disclose their identity and the company they work for when telephoning. If the creditor who owes the money has an attorney, the debt collector must talk only with the attorney. Debt collectors must notify the debtor of the amount of the debt and name of the creditor.

What types of debt collection practices are prohibited?
1.) Harassment–Debt collectors may not harass, oppress, or abuse you or any third parties they contact. For example, debt collectors may not:

Use threats of violence or harm;
Publish a list of consumers who refuse to pay their debts (Except to a Credit Bureau);
Use obscene or profane language; or
Repeatedly use the telephone to annoy someone. Such as letting your phone ring merely to harass you.

2.) False Statements–Debt collectors may not use any false or misleading statements when collecting a debt. For example, debt collectors may not:

Falsely imply that they are attorneys or government representatives;
Falsely imply that you have committed a crime;
Falsely represent that they operate or work for a credit bureau;
Misrepresent the amount of Your debt;
Indicate that papers being sent to you are legal forms when they are not;
Indicate that papers being sent to you are not legal forms when they are;

3.) Other Prohibited Statements–Debt collectors also may not:

State that you will be arrested if you do not pay your debt;
State that they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so; or
State that actions, such as a lawsuit, will be taken against you, when such action legally may not be taken, or when they do not intend to take such action.

4.) Prohibited Actions–Debt collectors may not:

Give false credit information about you to anyone, including a credit bureau;
Send you anything that looks like an official document from a court or government agency when it is not; or
Use a false name.

5.) Unfair Practices–Debt collectors may not engage in unfair practices when they try to collect a debt. For example, collectors may not:

Collect any amount greater than your debt, unless your state law permits such a charge;
Deposit a post-dated check prematurely;
Use deception to make you pay for collect calls or telegrams;
Take or threaten to take your property, unless it can be done legally; or
Contact you by postcard.

What control do I have over payment of multiple debts to one creditor?
If you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you do not owe.

What can I do if I believe a debt collector violated the law?
You have the right to sue a collector in a state or federal court within one year from the date the law was violated. If you win, you may recover money for the damages you suffered plus an additional amount up to $1,000.00. Court costs and attorney's fees can also be recovered. A group of people also may sue a debt collector and recover money for damages up to $500,000.00, or one percent of the collector's net worth, whichever is less.

Where can I report a debt collector for an alleged violation?
Report any problems you have with a debt collector to your State Attorney General's office and the Federal Trade Commission. Many states have their own debt collection laws, and your Attorney General's office can help you determine your rights.

You can file a complaint with the FTC by contacting the Consumer Response Center
by phone: 202-FTC-HELP (382-4357)
by TDD: 202-326-2502
by mail:Consumer Response Center
Federal Trade Commission
Washington, D.C. 20580

or by e-mail: www.ftc.gov
and register your complaint by using the electronic complaint form found there.

Although the FTC generally cannot intervene in individual disputes, the information you provide may indicate a pattern of possible law violations requiring action by the Commission.

For more information on Fair Credit Reporting, how to dispute credit reporting errors and much more, go to www.ftc.gov.

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