Frequently Asked Questions
What exactly is bankruptcy?
Bankruptcy is a legal means of eliminating debt enshrined in the U.S. Constitution. As such, bankruptcy proceedings are primarily governed by federal law.
What property might I lose if I file for bankruptcy?
Generally, you do not lose any property under a Chapter 7 or a chapter 13. If you have assets with a value which exceeds the permissible limits in a Chapter 7, you would have to either surrender those assets or pay their value to the trustee.
Aren’t there different kinds of bankruptcy?
There are several different chapters of bankruptcy. The two most common chapters of bankruptcy for individuals are chapter 7 and 13.
Under a Chapter 7 bankruptcy, a consumer asks the bankruptcy court to wipe out his or her debts (a discharge). Some debts like student loans and child support cannot be discharged in bankruptcy. If a consumer wants to keep a house or car which has been financed, they will need to continue making those payments.
In a Chapter 13 bankruptcy, a consumer makes monthly payments to a trustee to repay a portion of his or her debts. An individual may be required to file a Chapter 13 if they have un-exempt assets or their income exceeds the median. As part of filing Chapter 13, the consumer will file a repayment plan with the court showing how they intend to repay a portion of their debts.
Will I lose my house or apartment?
One of the biggest worries people have when considering filing for bankruptcy is the possible loss of their home. Though there are a few situations where you may have to give up your home, keep in mind that bankruptcy is not designed to put you out of your home. In the current economic environment it is rare that an individual loses their home in bankruptcy unless they choose to surrender it.
Will filing for bankruptcy stop harassing phone calls from bill collectors?
In either type of bankruptcy (Chapter 7 or Chapter 13), upon the filing of the case the court issues an “automatic stay”. The automatic stay prohibits virtually all creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.
What generally happens in consumer bankruptcy cases?
In a Chapter 7 case, you file several forms with the bankruptcy court listing income and expenses, assets, debts and property transactions. There is a filing fee, which may be waived for people who receive public assistance or live below the poverty level. A court-appointed person, known as a trustee, is assigned to oversee the case. Approximately one month after filing, you attend a “meeting of creditors” where the trustee reviews your forms and may ask questions of both you and your attorney. Three to six months later, you receive a notice from the court that “all debts that qualified for discharge were discharged.” This is what is known as a discharge.
Chapter 13 cases are a little different. You file similar forms in addition to a proposed repayment plan, in which you describe how you intend to repay your debts over the next three, or in some cases five years. As in a Chapter 7 a trustee is assigned to oversee the case. You attend the same type of meeting of creditors. If your plan is approved, and you make all the payments called for under your plan, you will usually receive a discharge at the end of your repayment term.
Why choose Chapter 13 over Chapter 7 bankruptcy?
Although many people qualify for Chapter 7 bankruptcy, there are several reasons why some may select to file Chapter 13:
You cannot file for Chapter 7 bankruptcy if you received a Chapter 7 discharge within the previous eight years.
You have valuable nonexempt property.
You’re behind on your mortgage or car loan. In Chapter 7, you may have to give up the property or pay for it in full during your bankruptcy case. In Chapter 13, you can repay the arrears through your plan, and keep the property by making the payments required under the contract.
You have debts that cannot be discharged in Chapter 7.
You have codebtors on personal (nonbusiness) loans. In Chapter 7, the creditors may pursue your codebtors for payment. In Chapter 13, the creditors may not seek payment from your codebtors for the duration of your case.
You feel a moral obligation to repay your debts, you want to learn money management, or you hope new creditors might be more inclined to grant you credit after a Chapter 13 than they would after a Chapter 7.
What are Non-Dischargeable debts?
There are certain debts that are non-dischargeable in both Chapter 7 and Chapter 13 bankruptcy plans. If you file for Chapter 7, these debts will remain owed by you when your case is over. If you file for Chapter 13, these debts may have to be paid during your plan.
Some types of non-dischargeable debts include:
Debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case (It is very important in both Chapter 7 and Chapter 13 cases to make sure to list ALL of your debts.)
Child support and alimony
Debts for personal injury or death caused by intoxicated driving
Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution, and
Most tax debts
In addition, the following debts may be declared non-dischargeable by a bankruptcy judge in Chapter 7 if the creditor challenges your request to discharge them. These debts may be discharged in Chapter 13. You can include them in your plan, and at the end of your case, the balance is wiped out:
Debts incurred on the basis of fraud, such as lying on a credit application
Debts from willful or malicious injury to another person or another person’s property
Debts from embezzlement, larceny or breach of trust