Are You Thinking About Bankruptcy?

Rights & Options When You Owe Money

Introduction

Are you having trouble paying your bills? You are not alone. Many people fall behind at some point in their lives. Don’t worry that you will go to jail — you will not. Owing money is not a criminal matter.

You might think that bankruptcy is the answer to your problems. But, whether you need itand how much it can help you depend on your situation. For some people it is the best choice, but for many others, it is not. Bankruptcy is a legal process that can get rid of certain debts and give you a chance for a fresh start. It does not get rid of all debts. You will still have to pay child support, alimony, unpaid taxes, and other bills like student loans and your mortgage.

This article talks about certain types of debt, such as

• credit card bills
• medical bills
• utility bills
• personal loans

These are called private unsecured debts.

The rules are different for other debts, such as

• child support
• taxes
• student loans
• secured debts

You will probably have to pay these debts. You should talk to a lawyer.

Is bankruptcy the best choice for me?

Bankruptcy is a serious step that is not right for every person. You may not need to file bankruptcy because you’re already protected. This booklet gives information on who is protected. If you are thinking about bankruptcy, talk to a lawyer soon to find out your choices.

Do I NEED to file bankruptcy?

If your income is very low and you have few assets, you might not need to file bankruptcy. Why? Well, chances are your creditors cannot collect money from you because you are already protected. (You do not have money or property that the collector can legally take.)

So, the first thing to find out is, “Are you already protected?” You may hear the words “judgment proof” which is the legal term for being protected after a court has entered a decision (judgment) stating you owe money to someone.

Find out if you are already protected

Am I Already Protected?
IF…	THEN…
You do not own a house, or You do not have a car worth more than $3,500, or You take home less than $348 a week ($360/wk in 2015), or Your income is from Social Security, public benefits, disability benefits, etc.	You are already protected. You probably do not need to file bankruptcy right now. You are judgment proof.

How does being judgment proof protect me?

Judgment proof means your creditors cannot take your money from you. You can be sued, but you will not have to pay the debt as long as your situation stays the same. If it changes (for example, you go back to work and make enough money), you may have to pay the debt. This type of judgment can last 10-20 years.

Note: A judgment is a court order. If the creditor wins the case, the judgment will say you owe your creditor a certain amount of money. A judgment does not require that you pay anything. A court can still enter a judgment against you even if you are judgment proof, but creditors cannot collect money from you.

How can a creditor collect money from me?

Until a creditor sues you and wins, he has only one way to collect from you – ask you to pay. He can call you and send you letters. Once the creditor sues you and wins, the creditor has three ways to try to collect from you:

• Take money from your pay,
• Take your property,
• Take money from your bank account.

But, if you are protected (judgment proof), a creditor cannot do any of these three things.

Even if a creditor sues you and wins, he can only collect from you if

• You take home more than $348 a week ($360/wk in 2015), or
• You have a house or other property or assets, or
• You have money in a bank account that is not protected.

What can a creditor do if he sues me and wins?
Can a creditor…	NO, not if…	YES, if…
Take money from your pay?	You take home less than $348 a week ($360/wk in 2015).	You take home more than $348 a week ($360/wk in 2015) now or when you go back to work.
Take your property?	You rent so you don’t have any property to take.	You have a house or other assets.
Take $ from your bank account?	Your money is protected (see below).	Your money is not protected.

Is money in my bank account “protected”?

Some of the money in your bank account may be safe. But, you may have to file certain papers in court to protect it. Creditors cannot take money from your bank account if it is a direct deposit and comes from:

• Social Security benefits (retirement, disability, survivor)
• Unemployment benefits
• State welfare
• Child support
• Alimony
• Pension
• Disability benefits (SSI and SSD)

Automatically Protected Money

Whichever is higher…

• 2 months worth of benefits, or
• $1,000

Limit on Amount of Money Protected

Two months worth of your direct deposits of child support, alimony, pension or government benefits or $1000 (whichever is higher) is automatically protected. Do not keep more than this protected amount in your bank account. If you do, the creditor may try to take that money. However, you will be able to get that money back after a court hearing.

Direct Deposit of Paychecks

Be careful if you have your paychecks directly deposited. A creditor CAN take that money from your bank account even if you make less than $348 a week ($360/wk in 2015). However, if you take home less than $348 a week ($360/wk in 2015), you will be able to get the money back after a court hearing. Instead of getting your pay directly deposited, it might be a good idea to get a paper paycheck.

Are there times when I should file bankruptcy?

You might want to think about bankruptcy if:

• Your income or assets change (then the creditors have something to take).
• You are too worried and stressed about your debts.
• You are about to get a job and creditors will be able to take money from your paycheck.

If you have not been sued, this is probably not the time you need to file bankruptcy.

How can bankruptcy help me?

You might be able to:

• Get rid of certain debts. They are legally erased (“discharged”) so you do not have to pay them.
• Stop collection calls.
• Stop most wage attachments (money taken from your pay to repay the debt).
• Keep any wages, money, or property you get in the future.
• Keep utility service – either turn service back on or stop a shut off (if it was because you did not pay your bills).
• Stop foreclosure of your home (for some types of bankruptcy).

Types of Debt:

Secured and Unsecured

Is there something the creditor can take back or repossess?

NO – then it is an unsecured debt and can be erased by bankruptcy.
YES – then it is a secured debt and cannot be erased by bankruptcy.

Example: Your creditor can take back your car if you don’t make your payments.

What debts CAN be erased?

Bankruptcy can get rid of unsecured debts, such as:

• Medical bills
• Credit card bills
• Utility bills
• Personal loans

What debts CANNOT be erased?

You will still need to pay debts, such as:

• Child support
• Alimony
• Most student loans
• Most taxes
• Secured debts (car loan, mortgage, etc.)
• Debts not listed on your bankruptcy papers (includes debts you get after filing bankruptcy)
• Debts where you were dishonest
• Drunk driving fines, criminal fines, traffic tickets, etc.

Can I keep my car?

It depends. If you owe money on your car, but you are not making payments, the lender can repossess (take back) your car. If you don’t owe money on your car, you can usually keep it if it is worth less than $3,500.

Note: You can keep your clothing, household items, and at least $10,775 in property and cash. If you own a home, you also can keep up to $75,000 ($150,000 for couples) in equity.

What happens to my credit rating?

Bankruptcy will stay on your credit history for 10 years. You can probably still get a credit card or loan after bankruptcy, but it is up to the lender. It might be harder to rent an apartment or get certain jobs.

What if someone signed the loan with me?

The other person (the co-signer) is still responsible for paying the debt–even if bankruptcy erased it for you.

More about the Bankruptcy Process

You may hear the words “file for bankruptcy” or “declare bankruptcy” – they both meanstart the legal bankruptcy process. It usually takes at least six months to finish the process. Chapter 7 is the most common type of bankruptcy.

It will cost you around $300 to file the papers in court. If you can’t afford the fee, you can apply to have the fee waived or to make payments. You can get the forms at the Connecticut Bankruptcy Court clerk’s office or online.

Before you file for bankruptcy…

• You must complete credit counseling BEFORE filing for bankruptcy.
  • To get a list of approved Credit Counseling Agencies, go online to CT Bankruptcy Court or ask the court clerk.
  • The counseling is $50. If you can’t afford the fee, ask the agency for a fee waiver before counseling begins.
• Do not sign up for any counseling until you have talked to a lawyer about whether bankruptcy is the best choice for you. Bankruptcy is a complicated legal process.

Where can I get help?

• Statewide Legal Services www.slsct.org
  860-344-0380 800-453-3320

• Consumer Law Project for Elders www.ctelderlaw.org
  1-800-296-1467

• Free legal representation may be available. Contact the Clerk’s Office shown below and ask for an application for the pro bono panel.
  New Haven County: 157 Church Street, New Haven
  203-773-2009

  Fairfield County: 915 Lafayette Boulevard,Bridgeport
  203-579-5808

Budget Counseling:

• Approved credit counseling agencies – get a list from U.S. Bankruptcy Court
• Cooperative Extension Service of the University of Connecticut. 305 Skiff St., North Haven. 203-407-3161

Definitions

Creditor – Someone you owe money to.
Debt – Money you owe (unpaid bills).
Debtor – Someone who owes money.
Discharge – The legal word for erasing or getting rid of your debt through bankruptcy.
Judgment proof – Creditors cannot collect from you. As long as your situation remains the same, it will be impossible for creditors to collect on the debt. However, as soon as your situation improves, creditors can take action.

This booklet was produced by the Legal Assistance Resource Center of Connecticut in cooperation with Connecticut Legal Services, Greater Hartford Legal Aid, New Haven Legal Assistance Association, and Statewide Legal Services.

The information in this booklet is based on laws in Connecticut as of 1/2014. We hope that the information is helpful. It is not intended as legal advice for an individual situation. Please call Statewide Legal Services or contact an attorney for additional help.