FAQ — Bankruptcy Frequently asked Questions
What are the most common reasons for a Chapter 7 bankruptcy?
The most common reasons for a Chapter 7 bankruptcy are unemployment; large medical expenses; seriously over-extended credit; marital problems and other large unexpected expenses.
What are the most common reasons for a Chapter 13 bankruptcy?
The most common reasons for a Chapter 13 are to catch up past due mortgage or car loan payments and keep their assets. Also, the debtor can pay most non-dischargeable federal taxes over the term of the Chapter 13 plan without interest.
What are the most common reasons for a Chapter 13 bankruptcy?
Individuals may file chapter 13 bankruptcy petitions if they reside, have a domicile, a place of business, or property in the United States, or a municipality, have a source of regular income, and on the date the petition is filed owe less than $250,000 in non contingent, liquidated, unsecured debts and less than $750,000 in non contingent, liquidated, secured debts. Corporations and partnerships may not file a chapter 13 bankruptcy.
Can a first mortgage be modified and result in a principal reduction of the mortgage?
YES. This is one of the prime purposes of Chapter 11 Bankruptcy.
Will the bankruptcy stop bill collectors from calling?
Yes. The automatic stay prevents bill collectors from taking any action to collect debts.
How long after filing will the creditors stop calling?
Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts. After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the bankruptcy petition, and supply them with the “docket number” for your case. In some cases, we will contact the creditor immediately upon filing the bankruptcy petition, especially if a lawsuit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for this conduct.
Who deals with my creditors and bill collectors during the bankruptcy?
We deal with all creditors.
Will my employer and landlord find out about my bankruptcy?
Bankruptcy petitions are public records. However, under normal circumstances, unless your employer or landlord is a creditor, they will not know you filed a bankruptcy petition. If your employer or landlord is a creditor it must be listed as a creditor on the schedules and receive notice of the bankruptcy proceeding. Chapter 13 debtors are required to make payments through wage deduction order and your employer will learn about the bankruptcy.
Does the spouse of a married person also have to file bankruptcy?
No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. If the spouses have joint debts, the fact that one spouse discharged the debt may show on the other spouses credit report.
Can I keep any credit cards?
Under some circumstances you may be able to keep some credit cards if the creditor agrees. There are many factors, which must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt.
What happens to my personal property, real property and other assets?
Often, all of your assets can be protected. Your assets will either be “excluded” from the bankruptcy or “exempted,” and you will be able to keep that property. However, if any question exists regarding protection of your assets, we will make sure to ensure that the exemptions are properly chosen and applied to maximize the value of assets retained.
Can I keep my home and automobile?
In many cases you can retain your home and automobile in a chapter 7 bankruptcy proceeding. You will lose your home or automobile in a chapter 7 if you are behind in making payments on a loan secured by the home or automobile and cannot reach a payment agreement with the creditor, if the home or automobile has no equity, or the home or automobile has equity in excess of what you are allowed to exempt. If either of these two conditions exists, you might consider filing a chapter 13 petition, which allows you to develop a plan for repaying your creditors without necessarily liquidating assets.
Can I keep my pension plans?
The United States Supreme Court has held that pension plans, 401(k) plans, and other “ERISA-qualified plans” are generally “excluded” from the bankruptcy.
Can I keep my IRA account?
What happens to my credit?
The bankruptcy filing is picked up and noted by several commercial credit reporting companies. Federal law limits the length of time that this information may be carried on a report. The limit on reporting bankruptcy filing is 10 years. Also, the law prevents certain governmental units and agencies from discriminating against persons who have filed bankruptcy.
Can bankruptcy stop foreclosure on my home?
In a Chapter 7 bankruptcy, the foreclosure action will temporarily stop until you get a discharge or before if the mortgage company receives relief from the automatic stay. In a Chapter 13 bankruptcy, the foreclosure action is permanently stopped as long as the arrears and monthly mortgage payments are kept current trough a confirmed Chapter 13 Plan.
What kind of debts does Bankruptcy eliminate?
In a Chapter 7, almost all unsecured debts with certain exceptions such as your most recent 3-years of income tax liabilities, student loans, alimony and child support obligations. Chapter 7 does not eliminate secured debts, except for liens on personal property that are redeemed for the fair market value of the collateral in the bankruptcy. In Chapter 13, all debts dischargeable in a Chapter 7, plus you get a super discharge. This means that certain debts that are non dischargeable in Chapter 7 are discharged in Chapter 13. You can also modify the rights of secured creditors in Chapter 13, which means that you can strip down a lien to the value of the collateral such as a car in your Chapter 13 payment plan.
Do I need to list all my debts?
Yes. However credit cards with zero balance are not considered debts.
Does Chapter 7 or 13 stop lawsuits and judgments?
Yes, immediately when we file your case. There are certain exceptions to this rule. One major exception is for child support enforcement suits.
Can I get out of a contract?
Bankruptcy generally cancels unwanted contracts if you discontinue the service and/or return the merchandise.
Can you stop wage garnishment?
Yes. Garnishment will stop when your case is filed. However there is one exception for child support enforcement suits.
Can you stop auto repossession?
In a Chapter 7, the bank cannot repossess your car once you have file bankruptcy. You must, however, get the payments current before the case is finished or before the bank receives permission from the bankruptcy judge to repossess.
In a Chapter 13, you can cure defaults on your car loan or even lower the payments on your car loan in Chapter 13. We also make the bank return the car if it was repossessed within 10 days before you filed your bankruptcy.
What about back child or spousal support?
A Chapter 7 bankruptcy cannot protect you after the discharge. Child and spousal support and alimony are non dischargeable debts.
In a Chapter 13 bankruptcy, you pay back child and spousal support in full, without further interest, in your payment plan.
What about back taxes?
In a Chapter 7 bankruptcy, secured taxes, such as property taxes, cannot be discharged. Unsecured taxes, such as income taxes, may be discharged if the taxes are 3 years old, you filed your tax return timely, and you have not been assessed in the prior 240 days.
In a Chapter 13, you pay back taxes without interest, in your payment plan.
What happens to my student loans?
In a Chapter 7 bankruptcy, student loans may be discharged if you are able to demonstrate hardship, which is not easy to do.
In a Chapter 13 bankruptcy, you can pay student loans without interest, in your payment plan.
Can I use my credit cards while in Chapter 7 or 13?
In a Chapter 7 you cannot use them until you receive a discharge.
In a Chapter 13, you must get court permission to incur debt over $250, except in emergencies.
How long will I be in Chapter 7 or 13?
A Chapter 7 bankruptcy takes about 5 months, although your dischargeable debts are gone the day we file your case.
A Chapter 13 takes 3 to 5 years for you to repay debts unless you are able to repay faster.
How can I rebuild my credit after bankruptcy?
Many people find that if, after filing bankruptcy, they promptly make the payments they are left with such as car payment, house payments, rent or utility payments, they can re-establish their credit ratings in about one and a half to two years’ time. However, individual credit ratings are based on overall credit history, as well as income and assets, and it may be harder for some people to re-establish a good credit rating than it is for others.
What happens when I file a chapter 7 bankruptcy?
You commence a chapter 7 bankruptcy proceeding by filing a “petition” with the bankruptcy court. The person filing a Chapter 7 is referred to as the “debtor. “The debtor is required to disclose to the court all his or her property and debts and turn over all nonexempt property to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor then receives a discharge of all dischargeable debts.