Frequently Asked Questions

The Johnson Law Firm provides the following information as a public service. Please remember the law often changes. Each case is different. This information is meant to give you general information and not to give specific legal advice. For a free consultation where we will explain everything to you, please contact our office.  If you have any other questions please feel free to contact our office at 256-586-2900 and talk with our friendly customer representatives. They can answer any questions you may have about Chapter 7 or Chapter 13 Bankruptcy. 

1. What happens during the first office visit?

There is no fee for you initial consultation.  However, we do ask you to bring the following information with you:  

*List of current monthly expenses 

*List of creditors and estimated balances 

 2. Can I file Debt Consolidation with no money up front? 

In many jurisdictions, most debtors are allowed to file a debt consolidation petition without paying any attorney's fee or filing fee up front.  The attorney's fee is approved by the Court together with the other administrative costs, is paid out of the monthly plan payments you make to the Trustee.  There are some exceptions to this general rule and you should discuss your situation with an attorney.  A Johnson Law Firm, P.C. attorney can explore your particular situation with you.  

3.  Can a foreclosure be stopped?  

When you get behind on your house payments, your creditor, perhaps a mortgage company, savings and loan bank, credit union or even individual, may foreclose on your property.  The number of months you are behind may vary, but at some point in time the creditor may refuse monthly payments unless you pay all the arrearage.   If you cannot, the entire amount owed on the note may be accelerated and the full amount will be due at once, and your home posted for foreclosure.  You should receive proper notice of the foreclosure, at least three (3) weeks prior to the actual sale of your home.  

At foreclosure, the property is sold to the highest bidder, usually the creditor itself.  If your mortgage is guaranteed, such as a VA or FHA loan, the creditor will be paid off.  

The creditor, or its guarantor, will then sell the home and apply the proceeds against the costs of foreclosure, fix-up, resale and the balance of your mortgage.  If the proceeds of this sale are equal to or more than this amount, you will have no further liability.  If the proceeds of this sale are less than this amount, which is usually the case, there is a resulting deficiency.  You are obligated to pay the deficiency.  Like any other debt, the creditor can pursue whatever collection action it deems appropriate.  

The filing of a debt consolidation petition to the actual sale of your home may give you the opportunity to stop the foreclosure, keep your home and pay the arrearage over a reasonable period of time while continuing to make future mortgage payments.  The mortgage holder can only continue with the foreclosure if it receives permission from the Court.  In most instances, the Court will not allow the foreclosure to proceed if you are capable of making your current mortgage payments and catching up what you are behind within a reasonable period of time.  

If your mortage payments are behind, you should immediately determine your debt consolidation options.  Quick action can possibly avoid foreclosure altogether allowing you to keep your home and avoiding expensive additional costs and fees.  

4.  Can automobile repossession be stopped? 

When you get behind on the payment of debt, which is secured by a security interest or lein on your car, furniture, jewelry, or other personal items, the creditor can proceed to repossess these items.  Upon repossession, the items are sold and proceeds are credited to the amount you owe.  If the sale proceeds are equal to or greater than the debt, you have no further liability.  If the sale proceeds are less than the debt, which is quite often the case, you owe the amount of the deficiency.  Like many other debt, the creditor can take whatever collection actions deems appropriate, including filing a lawsuit against you.  

The filing of a debt consolidation petition may give you the opportunity to stop repossession, keep the item and pay for it under controlled circumstances at a rate you can afford.  

5. Will I lose my possessions? 

The filing of a Chapter 13 debt consolidation petition will usually allow you to keep all your possessions.  In a debt consolidation proceedings, creditors are usually paid out of your income and from your property.  You are, in fact, repaying your debts.  Accordingly, you are usually allowed to keep your property.  

6. What is an automatic stay? 

Sometimes, the most valuable feature of a debt consolidation proceeding is the Automatic Stay gained instantaneously upon the filing of a petition.  When a person gets behind in paying his debts, creditors begin to take various actions to collect:  

*Telephone calls at home, at work, to family, to neighbors, or friends. 

*Personal contact by bill collectors creating embarrassment in front of family, friends, fellow employees or your employer. 

*Co-signers may be called upon to make payment.  

*Foreclosure proceedings may be started against your home. 

*Automobiles, furniture, jewelry, appliances, or other personal items may be repossessed. 

*If you owe the IRS or other taxing authorities, they may garnish your wages, put a lien on almost all your property, seize your bank account or even close your business.  

*Lawsuits may be filed and judgements taken against you.  

The filing of a debt consolidation petition automatically stops a creditor from further collection efforts.  No more phone calls, letters, bill collectors, foreclosures, repossessions, demands on co-signers in some instances, garnishments or seizures by the IRS, lawsuits or judgements; all collection efforts stop without the creditor first filing a request with the Court to get permission to continue collections.  Beyond all this, the Automatic Stay affords an opportunity for the debtor to have a breathing spell, a chance to sort things out, through the additional time gained to solve problems.  

7. Can I include taxes?

Although taxes cannot be avoided through a debt consolidation proceeding, they can be repaid over a period of time not to exceed five (5) years and, often, in a monthly amount the taxpayer can afford, rather than the amount the IRS is demanding.  Debt consolidation is the only tax repayment relief available to the taxpayer for non-dischargeable taxes other than having the IRS agree to your terms of re-payment.  

Once debt consolidation is filed, the IRS cannot garnish your wages, seize your bank account, close your business, perfect a tax lien or take any other collection effort.  There are generaly two kinds of tax obligations.  One is a secured obligation, where the IRS has perfected a tax lien on your property and the other type is unsecured.  

If you file a debt consolidation petition and your tax obligation is unsecured, then the tax obligation accrues no further interest or penalty charges.  This could amount to a substantial savings over five (5) year period of repayment.  If you have an unmanageable tax obligation, you should act immediately to determine your debt consolidation options to avoid the possibility of having the IRS take collection measures against you or perfect a tax lien that means you may have to pay interest and penalties on the tax obligation.  

8.  How will it affect my credit?    

A major concern that most of our clients have is to what extent their credit will be affected by filing for Chapter 13 bankruptcy.  Your credit will be adversely affected, There is no question about that.  The fact of your filing for will be reflected in your credit report for a period of ten (10) years from the date your petition is filed.  That, however, is not the main issue.  It is important to recognize that your underlying financial problems are the real cause of your negative credit, not the debt consolidation.  Actually, filing a debt consolidation petition can be the first step in reestablising your credit.  As stated, a debt consolidation filing will be on your credit report for a period of ten (10) years .  However, any negative or bad information currently on your credit report will stay on your credit report for a period of seven (7) years and that time does not start until you pay off your creditors in full or it is "written off as a bed debt."  As a practical matter, your credit will be affected for a period of at least seven (7) years without your doing anything.  The reason we say that filing a debt consolidation may be the first step in reestablishing your credit is that it provides a cutt-off, or a beginning point for you to obtain a fresh start.  

10. How long will the proceedings last?

A debt consolidation plan generally lasts for three (3) years to five (5) years, unless all debts can be paid off in full in less time.   A debt consolidation plan cannot last longer than five (5) years.  

11.  How will lawsuits be affected? 

The filing of a debt consolidation proceeding prevents any lawsuits from being filed or judgments taken against you.  If you file a debt consolidation petition and a lawsuit against you is pending, it can go no further.  If a judgment has been taken, its enforcement can go no further, all without first getting persmission from the bankruptcy court. 

If there are potential lawsuits against you, often the bankruptcy court offers a forum where the dispute can be rapidly settled--thus avoiding the time and expense of litigating the matter in state court.  If a judgement has already been taken against you, you may be able to arrange payment and satisfaction of the judgement over a period not to exceed five (5) years.  If lawsuits or judgments are either a threat or an existing problem, there may be relief available for you.  

12.  May employers discriminate against me for filing debt consolidation?

An employer may not discriminate against you for filing for debt consolidation.  It is illegal for either private or governmental employers to discriminate against a person as to employment for filing debt consolidation.  It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to granting a licenses, permits, and similar grants because that person has filed debt consolidation.  It is also illegal for governmental student loan or grant unit to deny a student loan or grant solely on the basis of filing.