Bankruptcy FAQ

Bankruptcy is designed to give people a “clean slate” when they have reached a point where they cannot reasonably pay back their debts. These debts are incurred for a variety a reasons. Sometimes they come about as the result of job loss, unforeseen medical expenses, or debts incurred in an attempt to start a business.

As a bankruptcy attorney in Utah, I often see potential clients exhibit apprehension towards taking the bankruptcy route to resolve their debt problems. While I do not advise everyone that sees me to file bankruptcy, I do counsel those that are in need of filing that there is no expectation under the law to continue to be burdened by debts that they know cannot be paid back. There is no expectation that you need to be miserable for the remainder of your life.

Bankruptcy is a process set forth under Federal law that is designed to both resolve unfixable debt problems and to provide an orderly distribution of assets to someone’s creditors.

Bankruptcy law in Utah provides several different routes through this process. While other, more uncommon, chapters of the bankruptcy law exist to deal with more particular situations, the chapters employed by individuals and
couples most commonly are Chapter 7 and Chapter 13. I provide a more in depth review of these different Chapters in different sections on this site.

But in a nutshell, the main difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy is that a Chapter 7 bankruptcy is a relatively quick liquidation process and a Chapter 13 requires a filer to make payments to a Chapter 13 trustee through a stream of monthly payments over three to five years.

I maintain offices in St. George, Utah and Orem, Utah and Las Vegas. I serve individuals and couples throughout Southern Utah, Utah County (the Provo and Orem area) and Southern Nevada. I have assisted hundreds in finding relief from creditors, garnishments and debt. At the law offices of Thomas Richards, P.C., I am committed to long term relationships with my clients. The only way to develop these relationships is through providing the highest level of legal services to my clients and being attentive to their needs.

One thing I have learned from the time sitting down with countless clients is that they universally hate the endless phone calls from creditors. Worse, sometimes creditors have filed a lawsuit to collect a debt or have already obtained a judgment. These collection efforts are unsettling and those who find themselves on the receiving end of those efforts want to put an end to them.

When a bankruptcy is filed, creditors are supposed to immediately stop all phone calls, lawsuits and any other collection efforts. The bankruptcy is filed with special federal courts that are set up to specifically deal with bankruptcy matters. Every state has at least one bankruptcy court. In Utah, the bankruptcy court is located in Salt Lake City, though hearings are also held in other locations in the state like St. George.

Something called a bankruptcy petition is filed with the court to start a bankruptcy and it immediately triggers a federal court order called an “automatic stay.” This automatic stay is what prohibits creditors from continuing their collection efforts.

Some creditors will get immediate notice that you have filed for bankruptcy. Credit card companies, many car lenders and many collection agencies will receive immediate notice. Some other creditors, particularly payday loan creditors may not get immediate notice. If some creditors do not get the notice immediately, we only need to inform them that a bankruptcy has been filed when they call so they do not call again.

As your attorney, I will tell you that if any creditor contacts you, you should tell them to call my office instead and I will give them the information they need concerning your bankruptcy.

As long as you are current on your mortgage, you may keep your home after a Chapter 7 assuming the equity you have in your home does not exceed the homestead exemption amount in Utah. If you are not current on your mortgage then you may or may not be able to stay in your home. If you are too far behind to catch up within a fairly short period of time, you may want to look at a Chapter 13 bankruptcy.

If you do not want to stay in your home, then you should stop paying any mortgage. The Chapter 7 bankruptcy will not stop the bank from foreclosing on your home, but they will not be able to come after you for any money you may owe on the house.

If you have too much equity in your house in Utah, then Chapter 7 bankruptcy may not be a good option for you. A state’s homestead exemption laws govern the amount of equity in your home you may have in your home that will be protected from a bankruptcy trustee. Utah has a relatively small homestead exemption, while Nevada has a relatively large homestead exemption.

If you have a house in which you owe more on your first mortgage than what your home is worth, then you may through a Chapter 13 bankruptcy strip off any second mortgage or any other junior lien off of your home. The second mortgage is called a “wholly unsecured” lien or encumbrance against your home.

We get rid of the second mortgage (or third mortgage) by filing a motion with the bankruptcy court after you have filed a Chapter 13 bankruptcy. We have to show through the motion that your house is worth less than what you owe on your first mortgage.

If the court grants finds that your home is indeed worth less than what you owe on your first mortgage, then your second mortgage will be stripped off of your property when you complete all the Chapter 13 plan payments to the Chapter 13 trustee.