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690 Flatbush Avenue, West Hartford, CT 06110-1308

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690 Flatbush Avenue West Hartford, CT  06110-1308

860 236-9350             800 856-6400  toll free     860 523-9101  fax

27 Holmes Avenue Downtown Waterbury 203 756-6100

 

Bankruptcy Frequently Asked Questions

(Click on the question for an explanation of the answer.)

(Numbers in blue refer to Bankruptcy Code sections.)

 

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(1)  Can I keep any of my property if I file bankruptcy?  Yes.

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(2)  Can I save my home if the bank has filed for foreclosure?  Maybe.

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(3)  Can I file bankruptcy and keep my car even though I have a car loan?  Yes.

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(4)  If I file for bankruptcy, does my spouse also have to file?  No.

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(5)  Can I file for bankruptcy if I filed before?  Maybe.

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(6)  Can I get rid of back taxes by filing bankruptcy?  Maybe.

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(7)  Will I ever be able to get a loan in the future if I file bankruptcy?  Yes.

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(8)  Do I still have to pay child support if I file bankruptcy?  Yes.  How about alimony?  Probably.

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(9)  Will I still have to pay some of my debts if I file bankruptcy?  Maybe.

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(10)  Do I have to go to court when I file bankruptcy?  Probably Not.

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(11)  Can people go to jail if they do not pay their debts?  Absolutely Not.

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(12)  Will my employer know that I filed for bankruptcy?  Probably Not.

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(13)  Can I do something about my debts besides filing for bankruptcy?  Maybe.

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(14)  Can I cancel my student loans by filing bankruptcy?  Probably Not.

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(15) Can I cancel my electric, gas and other utility bills by filing bankruptcy?  Yes.

 

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(1)  Can I keep any of my property if I file bankruptcy?

    Yes.  Most people who file bankruptcy keep all of their property.  This is because most people who file bankruptcy do not have much property.

    If you file a Chapter 13 Bankruptcy, you will not lose any property provided you successfully complete your repayment Plan.

    If you file a Chapter 7 Bankruptcy, the law allows you to keep certain types of property up to a certain value for each type.  For example, federal bankruptcy law allows you to keep a car with a net worth (difference between value and loan amount) of up to $3,225.  The amount you can keep of each kind of property is called an exemption.  The exemptions are doubled for a husband and wife who file bankruptcy together.

    Federal law and Connecticut law have different rules for the property that you can keep.  Most people use the Federal rules.  If you own a home with a lot of equity (the difference between the value of the home and the total mortgage debt), you probably will want to use the Connecticut rules because the federal homestead exemption per person is $20,200 while the Connecticut homestead exemption per person is $75,000.  Whether to use the Federal or Connecticut rules for exemptions is a decision that you should make with the advice of an experienced bankruptcy lawyer.

    The following are the main exemptions allowed by federal bankruptcy law as of April 2010:  522(d)

Federal Bankruptcy Exemptions

Type of Property

Amount

Homestead

$22,975

Motor vehicle

$3,675

Household Goods (limit of $475 per item)

Per Item $575

Total $12,250

Jewelry

$1,550

Tools of the Trade

$2,300

Personal Injury Proceeds

$22,975

Social Security Benefits, Unemployment Compensation, Public Assistance, Disability Benefits.

Unlimited

Alimony, Support, Separate Maintenance.

 

Amount reasonably necessary to support debtor and debtors dependents.

Stock Bonus, Pension, Profit Sharing, Annuity, or Similar Plan or Contract on Account of Illness, Disability, Death, Age, or Length of Service,

(Some Restrictions Apply)

Amount reasonably necessary to support debtor and debtors dependents.

Wrongful Death Proceeds

Amount reasonably necessary to support debtor and debtors dependents.

Accrued Dividend or Interest or Loan Value of any Unmatured Life Insurance Policy $12,250
Life Insurance Proceeds

Amount reasonably necessary to support debtor and debtors dependents.

Tax Exempt Retirement Accounts, IRAs, Roth IRAs.  (If Nontaxable Under Certain IRS Rules)

$1,245,475

Any Property Chosen by Debtor (Wildcard)

$1,225

Plus up to $11,500 of any unused part of the homestead exemption.

 

    The "wildcard" exemption for any property chosen by the debtor can be used in in combination with other exemptions.  For example, you could protect a car worth $4000 by using $3450 of the motor vehicle exemption and $550 of the "any property" exemption.

    Items that cannot be protected under the exemption rules must be turned over to the bankruptcy trustee.  An arrangement can usually be made to pay the trustee the value of a non-protected item (instead of the item itself) if you want to keep that particular item.

 

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(2)  Can I save my home through bankruptcy if the bank has filed for foreclosure?

    Maybe.  Chapter 13 Bankruptcy can be used to stop a foreclosure, as long the foreclosure has not reached the point where title to your home has passed over to the bank (the Law Days have passed) or there has been a foreclosure sale and the Connecticut Superior Court has confirmed the sale.  Under Chapter 13, a homeowner puts together a repayment Plan to get caught up on the overdue mortgage amount by making monthly payments.  For more information, see our web page on stopping foreclosure.

 

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(3)  Can I file bankruptcy and keep my car even though I have a car loan?

    Yes.  If you are behind and file a Chapter 7 Bankruptcy, you may be able to reach a reaffirmation agreement with the loan company.  This means that:

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You will continue to make monthly payments on the loan.

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The amount and number of your monthly payments may be adjusted for you to get caught up with the amount that you are behind on the loan.

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The loan amount may be adjusted to reflect the present value of the car if your loan is more than 2 years old.

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You will still owe the loan company the amount of the loan despite having filed bankruptcy.

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You are taking a risk because if your car should be totalled or stolen in the future, you will still have to finish making the loan payments if you owe more than the salvage value of the car.

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You can also keep the car by paying the amount you owe (called redeeming).
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You may be able to take out a new loan to pay off your existing loan.

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If you have had your car loan for more than 910 days (2 years) old, you may only have to pay the value of the car rather than the full amount of the loan. 

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You may be able to keep your car, without reaffirming or redeeming, just by continuing to make your payments on time.  As of October 2009, Connecticut state law provides that filing bankruptcy shall not be considered a default of a retail installment contract or ground for repossession of such motor vehicle.  CGS 36a-785.

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If you are behind with your car payments, you can choose to file a Chapter 13 Bankruptcy to get caught up.
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If you are up to date with your payments, you can reaffirm the car loan and keep the car.

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You can also keep the car by paying the amount you owe (called redeeming).
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You may even be able to take out a new loan to pay off your existing loan.

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If you have had your car loan for more than 910 days (2 years) old, you may only have to pay the value of the car rather than the full amount of the loan. 

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You may be able to keep your car, without reaffirming or redeeming, just by continuing to make your payments on time.  However, this has not been settled under the new bankruptcy law.

    If you file under Chapter 7, you must be able to protect the net worth (difference between value and loan amount) of your car under the exemption rules to keep your car.

  If are behind with your loan payments and you file a Chapter 13 Bankruptcy, you can get caught up with your car loan as part of your repayment Plan.

 

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(4)  If I file for bankruptcy, does my spouse also have to file?

    No.  If most of your debts are joint debts, then it would probably make sense for the two of you to file bankruptcy.  However, if most of the debt is in the name of just one spouse, then only the spouse with the debts would need to file.  As other considerations may apply, a married couple should speak with an experienced bankruptcy lawyer before either or both of them file bankruptcy.

    Even if only one spouse files, the total household income and expenses are used for certain purposes, including the Means Test under the 2005 Bankruptcy Reform Act and the income and expense calculations for any Chapter 13 Plan707(b)

 

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(5)  Can I file for bankruptcy if I filed before?

    Maybe.  Whether you can file again or get a discharge in a second case depends on a number of things, including how much time has gone by, whether the cases are Chapter 7 or Chapter 13, whether a discharge entered in the first case or whether the case was dismissed.  The following table explains the rules for filing bankruptcy again.  727(a);  1328(f);  109(g)

Bankruptcy Refiling Rules

First Case

New Case

Rules

Chapter 7

Discharge Entered

Chapter 7

  You must wait 8 years after you filed your first case before you can get a discharge in a second case.

Chapter 7

Discharge Entered

Chapter 13

  You can file at any time but a discharge cannot enter until 4 years after the discharge in the first case.

Chapter 13

Discharge Entered

Chapter 7

  You can file at any time and get a discharge if in the first case (1) you paid all your unsecured debt or (2)  you made your best effort and paid at least 70% of your unsecured debt.

  Otherwise, you must wait 6 years after you filed your first case before you can get a discharge in a second case.

Chapter 13

Discharge Entered

Chapter 13

  You can file at any time but a discharge cannot enter until 2 years after the discharge in the first case.  (At least one federal appellate court has held that a discharge cannot enter until 2 years after the date you filed the 1st case, not the date you got the discharge.)

Chapter 7 or

Chapter 13

Case Dismissed

Chapter 7 or

Chapter 13

  You must wait 180 days if the case was dismissed for willful failure to obey court orders or to prosecute the case.

  You must wait 180 days if you asked for the case to be dismissed after a creditor had moved for relief from stay.

  Otherwise you can refile at any time.  But if the first case was pending (still going on) at any time during the last year, to keep the automatic stay in place you must have a hearing within 30 days and you must show that your second filing is in good faith.

 

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(6)  Can I get rid of back taxes by filing bankruptcy?

Maybe.  It depends on the type of tax and how old the taxes are.  507(a)(8);  523(a)(1)

  You can discharge income taxes (and any associated penalties) if the following 4 things are all true:
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(1)  You did not commit tax fraud or willfully attempt to evade paying taxes.

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(2)  Your tax return was due at least 3 years before you file for bankruptcy.  If you obtained a extension to file, the extension date was at least 3 years before you file for bankruptcy.

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(3)  If you filed the tax return late (after its due date and any extensions), you filed the return at least 2 years before you file for bankruptcy.

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(4)  Any assessment by the government was made at least 240 days (8 months) before you file for bankruptcy.

  You can never discharge the following types of taxes:
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Payroll withholding taxes.  This would apply if you were an employer and withheld taxes from your employees but did not send the money you withheld to the government.  507(a)(8)(C)

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Sales taxes.  This would apply if you had a retail business and collected sales taxes but did not send the money you withheld to the government.  507(a)(8)(C)

    If the IRS has placed a lien against any of your property, the IRS can still go after that property even if your personal responsibility for the taxes has been discharged.

    You cannot discharge debts from money you borrowed to pay taxes that could not be discharged.  523(a)(14)

    Whether taxes are dischargeable can be a complicated area of law.  You should talk to an experienced bankruptcy lawyer if you owe taxes and are considering filing a bankruptcy.

 

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(7)  Will I ever be able to get a loan in the future if I file bankruptcy?

Yes.  There is no law that says you cannot get a loan after you file bankruptcy.

The following are some things you can do to rebuild your credit:
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Get a job,  even a part time job, to show a steady work record.

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Keep track of any money payments that you regularly make on time, such as rent, utility payments and mortgage payments.

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Get a credit card with a modest limit, use it and make your payments on time.

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Open a savings account and make regular deposits to it from your paycheck, even if the deposits are small.

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Open and use a checking account and be careful not to bounce any checks.

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Get a small loan from a bank or credit union and make your payments on time.

    In some ways, you become a better credit risk after filing bankruptcy because lenders know that you will not be able to file again for some time.

    We have had clients who have bought real estate three or four years after filing bankruptcy.  They have had to pay higher interest rates and more points but they still were able to get a mortgage.

 

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(8)  Do I still have to pay child support or alimony after my divorce if I file bankruptcy?

    Yes and Probably.  You must always continue to pay child support, including past due support owed to your ex-spouse or to the State.  523(a)(5)

    Whether there is a chance that you can avoid paying alimony depends on whether you file a Chapter 13 Bankruptcy or a Chapter 7 Bankruptcy.

    If you filed under Chapter 13 Bankruptcy, you may be able to stop paying alimony if you can prove to the bankruptcy judge that the alimony order is not really for your ex-spouse's support but is part of a property division.  This is not an easy thing to do and would require the assistance of an experienced bankruptcy attorney.  In deciding whether the alimony is support or property division, the judge can consider your and your ex-spouses' health, education and earning power, whether payments stop or are reduced upon remarriage or a child turning 18, and whether there was a need for support at the time of the divorce.  If, as is often the case, the alimony order is designed to provide for your ex-spouse's support and maintenance, then you must continue to pay the alimony.  1328(a)(2)

    If you filed under Chapter 7 Bankruptcy, you must continue to make all the payments you owe your ex-spouse as part of the divorce, including whatever you owe as part of a property division.  523(a)(15)

    Filing bankruptcy will not stop a court case for a divorce, to establish paternity, or to collect child support or alimony.  362(b)(2)

    If you file a Chapter 13 Bankruptcy, your repayment Plan cannot be confirmed (approved by the Bankruptcy Court) unless your child support and alimony payments are current.  Failure to confirm a plan will result in the case being converted to Chapter 7.  1325(a)(8)

    For further information, see the Bankruptcy & Divorce page.

 

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(9)  Will I still have to pay some of my debts if I file bankruptcy?

    Maybe.  It depends on whether you pass the Means Test, whether you have secured debt (such as a mortgage or car loan) and you want to keep the collateral (the house or the car) that secures the debt, and on what kind of debt you have.

    Alimony and child support obligations cannot be discharged523(a)(5)

    You cannot discharge recent taxes or money borrowed to pay those taxes.  523(a)(1);  523(a)(14)

    If you do not pass the Means Test, you cannot file a Chapter 7 Bankruptcy but will have to file Chapter 13 Bankruptcy and make a repayment Plan to pay a certain percentage of your debts.  707(b)

    For further information, see Chapter 7 non-dischargeable debts and Chapter 13 non-dischargeable debts.

 

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(10)  Do I have to go to court when I file bankruptcy?

    Probably Not.  If you file a Chapter 7 Bankruptcy you will need to go to the building where the court is and be interviewed by the  bankruptcy trustee but most people who file Chapter 7 never need to appear in court before the bankruptcy judge.  You will only need to appear before the judge for certain exceptional circumstances, such as if a creditor objects to the discharge of a debt, a reaffirmation agreement has to be approved by the court, or you are filing a second bankruptcy case and need to have the automatic stay extended.

    If you file a Chapter 13 Bankruptcy, you will need to appear before the judge to have your repayment Plan confirmed (approved by the court).    13241325

 

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(11)  Can people go to jail if they do not pay their debts?

    Absolutely not.

 

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(12)  Will my employer know that I filed for bankruptcy?

    Probably Not.   If you file a Chapter 13 Bankruptcy, your employer's payroll department will be notified because your Plan payments will be deducted from your paycheck.  Otherwise, unless your employer reads The Commercial Record, he or she will probably never know you filed bankruptcy.  Never heard of The Commercial Record?  Neither have most people.  It is a newspaper published in Hartford with a very small circulation that is usually only read by people involved in the lending business.

 

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(13)  Can I do something about my debts besides filing for bankruptcy?

Maybe.  This are some things you could consider:
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Do nothing.
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This only makes sense if you are judgment proof, that is, you do not have any assets (such as a house or a car) that a creditor would want to attach and you do not have a steady job with wages that could be garnished.

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We are not telling you to run up debt that you do not plan on paying back.  We are telling you that if you have nothing, than your creditors can collect nothing.

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Make lump sum settlements with unsecured creditors such as charge card companies.
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This may make sense if you cannot file Chapter 7 Bankruptcy because you do not meet the Means Test or you have filed before and not enough time has passed to file again.

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Unsecured creditors may agree to take much less than you owe if you can pay them all at once and they believe it would be hard for them to collect.

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If you have equity in your home, you could raise the money to make these lump sum settlements by refinancing or taking out a second mortgage.  Be aware, however, that many financial advisors would not recommend this because you are trading unsecured debt for secured debt.

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You may have to pay income tax on the amount of debt that is forgiven.  You should consult a tax advisor about this.

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If you are behind in your mortgage payments, reach a workout arrangement with your mortgage lender's loss mitigation department.
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This usually involves stretching out your payments or making additional payments each month to get caught up.

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Your lender will require you to provide them with documents showing your income, expenses and other financial circumstances.

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If your lender has started a foreclosure, be aware that the foreclosure case does not stop while your lender is deciding whether to approve the workout arrangement.  Make sure that deadlines do not pass that would make it impossible for you to stop foreclosure by filing Chapter 13 Bankruptcy.

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Use the Protection from Foreclosure process available under Connecticut law (Conn. Gen. Stat. 49-31e), if you qualify.
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If approved, you will have 6 months to get caught up with your mortgage, including late charges and any amounts you owe for the bank's attorneys fees.

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You must file a motion asking for protection with the Superior Court no later than 25 days after the foreclosure case's "Return Date" (written in on the top right side of the foreclosure papers; usually 2 to 4 weeks after you receive the papers).

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You must show that during the last 6 months the total earned by all the owners of your home is (1) less than $50,000 and (2) averages less than 75% of the homeowners' average earnings during the last two years.

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You cannot have filed for mortgage protection before.

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You must have lived in your home for 2 continuous years.

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Sell your home rather than risk losing any equity you may have in your home.
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Attorney fees and court costs incurred by your mortgage lender in a foreclosure action or bankruptcy court get added to the amount you owe on your mortgage.  These fees and costs, plus interest and late charges, can quickly eat up the equity in your home.

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If you are far behind in your mortgage payments, the amount you may have to pay in a Chapter 13 Bankruptcy  (the Plan payments, which include a 10% fee to the Trustee, plus your regular mortgage monthly mortgage payment, plus property taxes) may be too much in comparison to what your home is worth and what you will still owe on your mortgage after completing the Plan payments.

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Rather than making Plan payments for 3, 4 or 5 years, you can save up the money and use it toward a deposit on a home after you have reestablished your credit.

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Your realtor may be able to find you a home, condo or large apartment that you can rent.  People renting out such property look for stable tenants with good work histories.  If you were able to qualify for a mortgage, you will probably be an attractive tenant to these property owners.

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Get fooled by companies who promise that they have sure-proof ways to save your home from foreclosure.
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Such schemes usually involve you selling your home to a person or company who will then lease the home back to you until you can manage to buy it back.  What often happens is that the lease is written in such a way that you cannot keep up with the payments or other terms.  An eviction action is then started.  As a tenant, Chapter 13 Bankruptcy cannot help you.

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Remember, if something sounds too good to be true, it almost always is not true.

 

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(14)  Can cancel my student loans by filing bankruptcy?

    Probably Not.  You can only discharge a student loan by proving to the bankruptcy court that it would be a hardship to pay back the loan.  There is no specific definition of hardship in the bankruptcy law.  Courts generally consider whether paying back the loan would keep the debtor from maintaining a minimum standard of living, whether the debtor took out the loan with a good faith belief that he or she would be able to pay it back, and whether the debtor has made a reasonable effort to pay back the loan.  Establishing hardship is quite difficult and generally requires proof of a disability that is expected to last for some time.  523(a)(8)

 

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(15)  Can I cancel my electric, gas and other utility bills by filing bankruptcy?

    Yes.  However, the utility company may refuse to continue service if, within 20 days of filing bankruptcy,  you do not provide a security deposit or other assurance of making future payments.  You can request a court hearing if you believe the security deposit required by the company is too high.  The company can also apply against your old bill any security deposit you gave the company before you filed bankruptcy.  366

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Attorney John Serrano - Personal Injury, Social Security Disability, Divorce, Bankruptcy, Immigration, Workers Compensation.  Hartford, Waterbury

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This information is not intended to be legal advice for your individual situation.

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