Frequently Asked Questions
1. What property can I keep if I file bankruptcy?
When an individual files for bankruptcy he is allowed to keep a certain amount of property. The allowances are very generous and most people keep everything that they own. In addition, if you have a loan on the property, such as a house or a car, you only have to exempt the value of the property that is not covered by the loan. So if you have a $75,000 house with a $55,000 mortgage, there is $20,000 equity in the property. This number is less than the amount that you are permitted to exempt, so, you would be able to keep the home. Of course, you would have to continue to make payments on the property to prevent a foreclosure.
2. What is a Chapter 7 bankruptcy?
Chapter 7 Bankruptcy, sometimes referred to as straight bankruptcy, is the most common form of bankruptcy used by individuals. In a chapter 7 case, all of the individual’s nonexempt assets will either be sold or abandoned by the bankruptcy trustee. Any assets that are sold will be distributed to the individual’s creditors. Most often, a chapter 7 case will be a “no-asset case.” A no-asset case is one where the debtor has no nonexempt property that is available to be liquidated. This means that no assets will be sold by the trustee or distributed to the debtor’s unsecured creditors.
Upon completion of a chapter 7 bankruptcy, the individual will typically receive a bankruptcy discharge. A discharge frees the debtor from any personal obligation to repay the dischargeble debts. Certain debts, like child support and recent income taxes, are not dischargeable. In addition, a discharge typically will not terminate any liens on property. So while the individual may not be personally liable for the mortgage on his house, he will have to continue making payments if he doesn’t want the bank to foreclose on it. Thus, while the discharge does wipe out any personal responsibility that the individual has, the obligation to repay the debt still survives if the individual wishes to retain the property.
3. What is a Chapter 13 bankruptcy?
Chapter 13 Bankruptcy gives an individual the opportunity to pay a portion of his or her debts, usually out of future income. However, there is no set requirement that any specific amount of the debt actually be repaid. Many people pay an extremely small percentage of the total amount of debt, and discharge the rest. An individual who files a chapter 13 bankruptcy will be allowed to keep and use all property that they currently have, whether it is exempt or nonexempt. However, where someone has large amounts of unexempt property, the amount of their monthly payment to the bankruptcy court will be higher to reflect the value of those assets. In a typical chapter 13 case, the individual’s attorney will create a plan, which is approved by the court. This plan lasts for either 3 or 5 years, and requires the individual to pay a certain amount of money each month to the trustee. The trustee will then distribute this money according to the plan. Once the plan is completed, the individual will receive a discharge of the unpaid portion of the dischargeable debts.
4. How long will I be in bankruptcy?
Most Chapter 7 cases last between three and six months. Most Chapter 13 cases last for three to five years.
5. Will filing for bankruptcy stop a foreclosure or repossession?
When an individual files for bankruptcy his property is protected by a provision of the bankruptcy code known as the automatic stay. The automatic stay is extremely helpful to individuals who file for bankruptcy, as it protects them from almost all types of adverse action taken by a creditor. The automatic stay will prohibit a creditor from foreclosing or repossessing your property, enforcing a judgment that was already obtained, filing or continuing to pursue a lawsuit against the individual, turning off your utilities, and performing ANY type of act to collect or recover a debt owed by the individual. A creditor who performs any of these actions after they know you have filed a bankruptcy may be in violation of the automatic stay. There are serious consequences for violating the automatic stay. A creditor who violates the automatic stay may be liable to the debtor for actual damages, attorney’s fees, and, in some circumstances, punitive damages.
Most importantly, the automatic stay goes into effect immediately upon filing a bankruptcy petition. This means that filing for bankruptcy can help protect your property even if you have waited until the last minute to get help. However, there are certain requirements that must be fulfilled before you are permitted to file a case. For example, most debtors are required to complete a credit counseling course and to include a certificate of the completion of the course with the bankruptcy petition. Thus, you certainly should not wait until the last minute to seek help.
6. What debts will be discharged by a bankruptcy?
A bankruptcy discharge is intended to provide an individual with a clean slate. Typically, a bankruptcy discharge will wipe out an individual’s liability to pay almost all debts. This means that the individual usually will not have to repay credit card debts, medical bills, and most other debts that are not secured by your property. Technically, the individual’s obligation to repay debts that are secured by property, such as a mortgage or car loan, is also usually wiped out. However, since the holder of the loan is still able to foreclose or repossess the property if the debt is not paid, the individual usually continues to pay the debt so that he can retain the property. However, if you intend to surrender the property to the lender, there is usually no reason to continue payments on it once you have filed bankruptcy.
In addition to debts secured by property, a bankruptcy discharge will not eliminate most recent taxes. In addition, any debts that the individual has because of fraud or false pretenses will not be discharged. This means it is very important that an individual considering bankruptcy does not purchase items that they know they will be unable to pay for. A court may find that these purchases were done fraudulently, and could refuse to discharge this debt.
Student loans, child support and alimony are also not wiped out in a discharge. These are just some of the debts that can and cannot be discharged in a bankruptcy. The bankruptcy laws actually list 19 different kinds of debts that are not discharged in a Chapter 7 bankruptcy. However, many of those debts that are not dischargeable are unusual. For example: debts for violating federal election law.
7. What happens after I receive a bankruptcy discharge?
Once you receive a bankruptcy discharge, you are no longer required to repay any of the debts that were discharged. After the discharge, you are free to repay any debts that you want to, and if you choose to make a sporadic payment to a creditor this will not make you responsible for the rest of the debt again. In addition, creditors are prohibited from trying to collect on any debts that were discharged in the bankruptcy. Similar to the automatic stay, creditors are prohibited from any acts to try and collect a debt that was discharged. Any violation of this law can have serious consequences.
8. Is bankruptcy right for me?
Unfortunately, there is no easy way to determine if bankruptcy is right for you. Each case is different, and these individual facts must all be closely analyzed to determine if filing a bankruptcy will be helpful for your situation. We offer a free, in-person analysis of your financial situation with an experienced bankruptcy attorney.
9. What information will I need to file for bankruptcy?
In order to file for bankruptcy, an individual needs to provide certain information, including:
- A list of all creditors, and the amount of nature of each claim
- The source, amount, and frequency of the individual’s income
- A list of all the debtors property, and
- A detailed list of the debtor’s monthly living expenses; such as food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
In addition, married individuals must gather this information about their spouse, even if only one spouse is filing. While all of this information is not necessarily needed for the initial interview with one of our attorneys, it is helpful to bring as much of it as possible so we can give you an accurate list of your legal options.
10. Will I need to go to court if I file for bankruptcy?
Most people who file for bankruptcy do not go to court. Instead, an individual who files for bankruptcy is required to go to a “meeting of the creditors.” Despite the name, creditors rarely attend these meetings. Rather, the only parties at these meetings are usually the individual filing for bankruptcy, his or her attorney, and the bankruptcy trustee. The bankruptcy judge is not allowed to attend this meeting. These meetings usually last between 3 and 7 minutes, with the trustee asking the individual a few questions. For most people who file bankruptcy, this meeting is the only in-person appearance that is required.
11. Can I lose my job if I file for bankruptcy?
No, the law expressly prohibits both governmental units and employers from discriminating against a person solely because they filed for bankruptcy.
12. Can I repay a debt after it has been discharged?
Yes, just because a debt has been discharged does not mean that you cannot pay it. An individual who has received a discharge can repay as many discharged debts as he or she wishes. In addition, repaying a portion of a discharged debt does not make the individual responsible again for the entire debt. Rather, an individual who wants to repay part of a discharged debt can pay as much or as little of the debt as they want.