Bankruptcy FAQs

Bankruptcy is a legal method of eliminating debt and providing a means for debt-oppressed people to obtain a “fresh start.” In many cases, bankruptcy means the elimination of the debt that you owe to your creditors. There are two primary forms of bankruptcy, Chapter 7 and Chapter 13.

You must reside or have a domicile, a place of business, or property in the United States or a municipality. You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan. You must not have had a bankruptcy filing dismissed for cause within the last 180 days. It must not be a “substantial abuse” of bankruptcy to grant the debtor relief.

Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7. It would not be fundamentally unfair to grant the debtor relief under Chapter 7 or Chapter 13.

More so than in any other time in our country’s history, our economy is based on consumer debt. In fact, in this age of multi-billion dollar corporate bailouts, easy credit and relentless bombarding of seductive messages cajoling us to “charge, consume, buy” it is not surprising that so many people are drowning in debt.

For many of us, this debt is insurmountable and is causing family problems and feelings of hopelessness and even suicide. With credit card interest rates of 18-21%, many feel like modern day indentured servants. Many times, the debt is occasioned by unforeseen events such as loss of a job or medical bills, but more often it is simply poor planning. Nevertheless, in instituting our bankruptcy laws, Congress recognized that responsible, well-intentioned people could from time to time run into financial problems. By allowing you to recover from your debt burden you will be able to start afresh, look to the future and become a more productive member of society. This is good for you and for good for society as a whole.

This is commonly referred to as “straight bankruptcy” and it is the most commonly filed form. Only individuals (not businesses or partnerships) may obtain a discharge in a Chapter 7 proceeding. Large credit card debt and other unsecured bills coupled with few assets, typify the filer of this form of bankruptcy. In the vast majority of cases this type of bankruptcy is able to completely eliminate all of the filers debts.

The vast majority of filers get all or most of their debts discharged (wiped-out) without giving up any of their own property. This is because federal as well state laws provide exemptions for your property. Exempted property is property such as household goods and personal belongings, which you may keep despite your bankruptcy.

Some kinds of debts are not dischargeable, which means that you will remain obligated to repay them even after you complete your personal bankruptcy. Examples of nondischargeable debts are certain state and federal taxes and student loans unless there is undue hardship.

Under a chapter 13 bankruptcy, a debtor proposes a 3-5 year repayment plan to the creditors offering to pay off all or part of the debts from the debtors’ future income. The amount to be repaid is determined by several factors including the debtors’ disposable income. To file under this chapter you must have a “regular source of income” and have some disposable income. Like in a Chapter 7, corporations and partnerships may not file under this chapter.

There are several situations where a chapter 13 is preferable to a chapter 7. A chapter 13 bankruptcy is normally for people who have too much income to file a Chapter 7 bankruptcy or have the kind of debt that is non- dischargeable in a Chapter 7 (e.g. certain taxes). Also, people file Chapter 13 because they are behind on their mortgage or business payments and are trying to avoid foreclosure. A chapter 13 bankruptcy allows them to make up their overdue payments over time and to reinstate the original agreement. Also, where a debtor has valuable nonexempt property and wants to keep it, a chapter 13 may be a better option.

However, for the vast majority of individuals who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice.

Yes, When you file bankruptcy, federal law imposes an “automatic stay” which precludes your creditors from taking any action to collect debts against you including court judgments and tax debts during the pendency of the bankruptcy. For instance, if you have been served by one of your creditors to appear in court over a debt, the bankruptcy filing will stop this lawsuit.

Any wage garnishments or repossession efforts are also halted. However, once the bankruptcy is over, a creditor holding a claim that was not discharged may proceed to collect on the debt. Also, under some circumstances a secured creditor may proceed to collect on the lien he has on the filer’s asset during the bankruptcy proceeding, but may only do so by filing a court motion and by getting the approval of the bankruptcy court first.

Within a couple of weeks of the filing of your petition, the bankruptcy court clerk mails your creditors notice of the filing and the imposition of the automatic stay. Until the creditors get notice, it may be necessary for you to supply the creditor with the docket number and date of your bankruptcy. Once they have been given notice, they must stop collection efforts against you or may be liable for court sanctions. Thankfully, for the vast majority of people, once their bankruptcy petition is filed that is the last time they hear from their unsecured creditors.

For the most part, the answer is no. For specific property (usually secured) such as your car loan or your houses mortgage that you plan on keeping you should probably continue to make payments. Also, for day to day expenses such as rent and utilities you should also continue to make payments. You should stop making payments on other old debts incurred prior to the bankruptcy such as credit card debts.

For a typical chapter 7 case, the discharge of your debts usually takes approximately 4-6 months. A chapter 13 takes anywhere from 3-5 years.

If your creditors are attacking your assets and income and you are in debt way over your head, look into the “fresh start” filing bankruptcy may be able to provide you with. It seems the stigma attached to filing bankruptcy has greatly diminished over the last decade as a fast increasing percentage of the population file every year.

No. Bankruptcy preparers are not licensed and regulated by a bar association, so you have no way of knowing the qualifications and background of the person with whom you are dealing. Moreover, you must keep in mind that they cannot give you legal advice and charge anywhere from $150-250 just to type your petition. They cannot appear with you in Court. You are definitely better off with an attorney than proceeding without one which is a very risky way to proceed.

As long as you continue to keep up to date on your payments on the loan that secures the property, there should not be a problem keeping your house or car, even after the bankruptcy proceeding is concluded. If you want to play it safe have your attorney contact your creditor to reaffirm the debt directly. This reaffirmation agreement must then be filed and approved by the court.

Although the record of filing bankruptcy may technically stay on your credit for up to 10 years, often by making payments on time subsequent to your bankruptcy you can regain an “A” credit rating within 2 years of your discharge.

Ironically, in many cases filing bankruptcy may actually help your credit rating because discharging your debts greatly improves your debt to income ratio which is a major criteria creditors use in judging your “creditworthiness” (see below). In fact, many people report a flood of pre- approved credit cards within weeks of a bankruptcy discharge.

By all accounts, bankruptcy no longer has stigma attached to it that it once did. Perhaps, this is one of the reasons that the number of filings has been dramatically increasing over the last several years.

The credit card accounts that you have a zero balance on are not technically creditors and thus are not discharged in bankruptcy. Often these creditors will allow you to keep your credit with them.

If you do have an outstanding balance when you file, you may still be able to keep your account. To do this you usually must agree with the creditor to pay off the balance. Once you make an agreement with the creditor you must file the “reaffirmation agreement” and get the approval of the bankruptcy court. It is advisable to consult legal assistance before you reaffirm an otherwise dischargeable debt. Some creditors will allow you to get a new account with them by reapplying with them even though you discharged their debt in the bankruptcy.

Not unless you tell them or they go out of their way to check the public records. Bankruptcy filing are not normally published in newspapers, therefore the only people who usually find out that you are in a bankruptcy are creditors whose debts you have listed on the petition or who you apply for credit with.

No, if your employer finds out about your bankruptcy, it is against federal law to discriminate against someone for filing bankruptcy.

In most cases, completing and filing your petition is the hardest part. If your bankruptcy petition does not raise any red flags for the trustee or your creditor(s), you’re usually in good shape. Thirty to forty days after filing the petition, you are required to attend the “First Meeting of Creditors” or “Section 341(a) Examination.”

At this meeting, creditors are given the opportunity to ask you questions. There is no judge for this hearing, just the Trustee in charge of your case. However, in most “no asset” cases, rarely do creditors show up for this hearing. Normally there is a room full of other filers and the questioning by the Trustee is very limited since they are usually pressed for time.

In most cases, the key to the success of your case lies in your bankruptcy petition. Normally, 4-6 months from the time the petition is filed, you are granted final discharge of your debts.

No, running up your credit cards on the eve of bankruptcy in anticipation of filing may cause your debt to be nondischargeable on the grounds of fraud and you can be fined. You should get legal advice concerning large amounts of credit card debt incurred for “luxury goods” right before your bankruptcy.

Yes. Knowingly and fraudulently concealing your assets from the bankruptcy court is a felony and the court has the power to fine you and deny you a discharge. Remember that most bankruptcy cases are considered “no asset” cases since state or federal exemptions protect all of their property.

There is a lot to think about before filing bankruptcy, however feeling ashamed should not be one of them. The history of bankruptcy in the United States dates back to the founding of our nation. The early English practice of debtor’s prison was so abhorred by our founding fathers, they expressly outlawed it and instituted forgiving bankruptcy laws early on in our nation’s history. Over the years, some of our nations’ most revered companies and people have turned to the bankruptcy system for help. Perhaps this nations greatest president and founding father, Thomas Jefferson filed for bankruptcy not just once, but several times to eliminate the accumulation of his huge debt. Filing bankruptcy is better put into perspective when you know that a man of Mr. Jefferson’s foresight and intelligence could repeatedly get himself into financial trouble.

Yes. For further information, please call our law offices.