What is bankruptcy?
Bankruptcy allows individuals or businesses ("debtors") who owe others ("creditors") more money than they're able to pay to either work out a plan to repay the money over time or completely eliminate ("discharge") most of the bills.
What type, or chapter, of bankruptcy should I file?
Consumers typically file Chapter 13 bankruptcy, where repayment is made to creditors, or under Chapter 7 where the debts are discharged. Each chapter of bankruptcy spells out:
- What bills can be eliminated
- How long payments can be stretched out
- What possessions you can keep
- Additional information
The selection of which type to file depends on your particular circumstances and whether or not there are assets available to repay all, or part, of the debts owed. Bankruptcy laws can be tricky and involved, so determining if you should bankrupt and what type of bankruptcy you need should be made with the input of an experienced bankruptcy lawyer.
Can I change from one chapter of bankruptcy to another?
Generally, you can convert a case once to any other chapter for which you are eligible. The request to convert can be a simple one-sentence document. There are issues to watch when going from on chapter to another, though. For example, when moving from a Chapter 13 to a Chapter 7, you'll need to review whether you have acquired items that will now be considered property of the estate under Chapter 7 that wasn't part of the previous filing.
What's the difference between secured and unsecured debt?
Secured debt is a creditor's claim that's secured by a lien of some type in your property, either by your agreement or involuntarily such as with a court judgment or taxes. A creditor can generally claim the property that secures the debt in the event of bankruptcy. Unsecured debt is not tied to any type of property, leaving the creditor without any claim to property.
Who can file bankruptcy?
With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition.
How often can you file for bankruptcy?
A Chapter 7 bankruptcy can be filed every 8 years from a previous chapter 7 filing or 6 years from a prior chapter 13 filing. Chapter 13 can be filed 4 years from a prior Chapter 7 filing or 2 years from a prior Chapter 13 filing. Filing bankruptcy can adversely affect your ability to obtain future credit, rent housing and even negatively impact a job application, so any decision to file must be carefully considered.
What do I need to begin the bankruptcy process?
You need to compile a listing of the past and present debts you have. The petition in a bankruptcy filing includes schedules of assets and liabilities as well as a statement of financial affairs. These documents are filed with the bankruptcy court, along with payment of the filing fee.
Do you have to have a certain amount of debt to file?
No. However, some situations may not warrant filing for bankruptcy. If your financial situation is temporary, you may consider making arrangements with individual creditors for a change in payment amounts or a reduction in the total amount due. If an individual has little in the way of property or money, filing bankruptcy may not be necessary, as the creditor may not be able to collect the debt.
What is a joint petition?
A joint petition is the filing of a single bankruptcy petition by an individual and the individual's spouse. Only people who are married on the date they file may file a joint petition. Unmarried partners must each file a separate case.
What happens if one spouse files for bankruptcy and not the other?
If one spouse files and the other does not, the one who does not file could possibly be responsible for the debts. Please speak to your attorney to properly explain this situation.
Does my divorce decree protect me from creditors if my ex files for bankruptcy?
No. If you are a co-signor with your ex-spouse on a debt, the creditor can require the entire payment of that debt from you even though the divorce decree assigns the debt to your ex-spouse. Your divorce decree may address any recourse you may have against your ex-spouse should he or she default on the loan obligations set out.
The principal signor on a loan filed bankruptcy. Now the creditor is coming after the co-signor. Can they do that?
Yes. The lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. This fact makes it extremely important that those considering co-signing for a loan for another be ready, and able, to pay the loan in the event that the principal signor defaults.
Can all types of debt be discharged?
No. The debts that cannot be discharged vary slightly between the different chapters of bankruptcy. Generally, the following cannot be discharged:
- Debts for taxes owed to local, state or federal agencies
- Debts for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained fraudulently
- Debts which were neither listed nor scheduled or which the debtor waived discharge
- Debts which are owed to a spouse, former spouse, or child of the debtor, for alimony, maintenance, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record
- Debts for government-sponsored educational loans, unless it can be shown that repayment will cause an undue hardship
- Debts for death or personal injury caused by the debtor's drunk driving or from driving while under the influence of drugs or other substances
- Debts incurred after a bankruptcy was filed
What can I keep, if anything, if I file bankruptcy?
Exemptions allow an individual to "exempt", or keep, certain kinds of property. State law defines what assets are considered "exempt," but typically include:
- Vehicles up to a certain amount
- Equity in a home up to a certain amount
- “Tools of the trade" or tools and equipment necessary to allow the individual to continue working
Do I have to file bankruptcy on all the accounts I owe, or can I keep some?
You must include all the debts you owe in your petition and schedules. You may opt to keep some debts by "reaffirming" the specific debt.
Will I lose my retirement accounts or payments from social security?
Generally, no. Retirement accounts that are ERISA-qualified aren't considered property of an estate and cannot be taken. Social Security benefits are generally protected from assignment, or garnishment for debts in bankruptcy. The Social Security Administration's responsibility for protecting benefits against legal process and assignment usually ends when the beneficiary is paid. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the "only" deposits into the account are direct deposits of Social Security benefits are "identifiable" and generally protected.
Will I lose my home if I file for bankruptcy?
Possibly. The factors that impact your ability to keep your home are:
- The state you are in and the exemptions allowed
- The status of your loan (current or in foreclosure)
- The type of bankruptcy you're filing (Chapter 13 provides more protection than Chapter 7 as long as payments are current)
How long does a bankruptcy stay on my record?
Bankruptcies remain on credit reports anywhere from seven up to 10 years.
Can I do anything to remove a bankruptcy from my credit report?
No. Although at your option, you can file an explanation with the credit reporting agencies briefly describing the events resulting in your bankruptcy. If an account is reported inaccurately, you can request the record be updated to reflect the actual situation.
When can I apply for credit again?
The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor. There is no law that prevents anyone from extending credit to you immediately after the filing of a bankruptcy, but creditors aren't required to extend you credit.
Can a "credit repair" company really save me from bankruptcy?
Most consumers can be just as effective as a credit repair company in dealing with credit reporting agencies and improving their credit ratings -- it simply takes time and patience. While there are non-profit companies in each state that offer credit guidance for a small fee, "We can fix anything" credit repair companies offer very little in comparison to the fees they charge.
Can a creditor continue to contact me after I've filed for bankruptcy?
During the time the debtor is working out a plan or the trustee is gathering and preparing the assets to sell, the bankruptcy code dictates that creditors must stop all collection efforts against the debtor. As soon as the bankruptcy petition is stamped "Relief Ordered" upon filing, you are immediately protected from your creditors. If a creditor continues to attempt to collect a debt, immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case name number and filing date, or a copy of the petition that shows it was filed. If the creditor still continues to collect, the debtor may be entitled to take legal action against the creditor.
Who lets my creditors know I've filed for bankruptcy?
The bankruptcy court notifies, by mail, all creditors advising them of:
- The filing of the bankruptcy
- The case number
- The automatic stay
- The name of the trustee assigned to the case (if filed under chapters 7 or 13)
- The date set for the meeting of creditors
- The deadline, if any, set for filing objections to the discharge of the debtor and/or the discharge of specific debts
- Whether and where to file claims
- The exact information in the notice may be slightly different depending on the chapter under which the case is filed.
What does a trustee do?
The trustee's job is to:
- Administer the bankruptcy
- Make sure creditors get as much money as possible
- Run the first meeting of creditors (also called the "section 341 meeting").
- Collect and sell non-exempt property (in a chapter 7 case) or collect and pay out money on a repayment plan (in a chapter 13 case)
- Obtain information from you and documents related to your bankruptcy
Can creditors object to a bankruptcy filing or plan?
Yes. Each type of bankruptcy allows creditors to object to specific debts included in the plan or the manner in which the plan addresses the repayment or discharge.
In Chapter 7 Bankruptcy, creditors generally have 60 days after the first creditors meeting to object to the discharge of a specific debt. If no objections are filed, the court will issue the discharge order and the trustee will proceed to collect and sell the assets, then distribute the proceeds to the creditors under a predetermined system. If there are objections, the bankruptcy itself, less the objected debts, continues through to discharge. It may be necessary to have a trial before a judge to resolve the items that creditors objected to.
In a Chapter 13 case, creditors are given an opportunity to object to the plan for repayment. If there are no objections filed by creditors or the trustee, the plan may be confirmed as filed. After the plan is confirmed, the trustee will distribute the payments from the debtor to creditors until the plan is completed. Upon completion of the Chapter 13 plan, the court will issue a discharge order, the trustee will prepare a final report, and the case will be closed.
What happens at a creditors meeting?
The debtor must attend the creditors' meeting scheduled for their bankruptcy petition. The trustee conducts the meeting. The debtor must answer questions concerning:
- How the situation evolved
- Any actions taken with the property
- Debts listed in the petition or any other financial information requested by the trustee
Failure to respond or not respond truthfully can result in the petition being dismissed or, in extreme cases, a charge of perjury. Creditors have been notified that they may attend and question the debtor about the assets of the debtor or any other matter relevant to the bankruptcy. A creditor doesn't waive any rights by not attending the creditors meeting.
What if I've forgotten to include a debt on my schedule? Can I add it later?
After filing the petition, if you discover that an entry is inaccurate or missing, the documents typically may be corrected by filing of an amendment. Remember, you're submitting the petition under the penalty of perjury, so take care with the initial filing.
When do I have to stop using my credit cards if I'm planning on filing for bankruptcy?
As soon as you anticipate filing bankruptcy, you must stop using your credit cards. Bankruptcy law allows the review of questionable purchases for potential fraud. If a purchase is made 40 days prior to filing or cash advances taken within 20 days of filing, the debt may possibly be excluded from the bankruptcy.
What is a reaffirmation agreement?
A reaffirmation agreement legally obligates the debtor to pay all or a portion of an otherwise dischargeable debt. These are voluntary agreements not required by bankruptcy codes. You may voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid legal reasons for wanting to reaffirm a specific debt, such as a vehicle loan.
Can a bankruptcy be reopened?
Yes. Typically, a bankruptcy case is reopened by the trustee when questions arise concerning what was included or possibly omitted, or any other irregularities that surface.
How is an inheritance treated in a bankruptcy case?
How an inheritance is treated in bankruptcy depends on when you become entitled to receive it and what type of bankruptcy relief you're seeking. If you've filed for Chapter 7 bankruptcy, and you become entitled to an inheritance within 180 days of your filing date, the inheritance will be a part of your bankruptcy estate, and can be used to pay your debts. The important date is when your right to the inheritance is fixed, typically on the date of a person's death. You might not receive property or money from someone's estate for many months.
If you've filed a Chapter 13 case, your inheritance can be used in determining how much you have available to pay creditors under your repayment plan, and the 180-day limit doesn't apply. In either type of bankruptcy, you must inform the bankruptcy trustee about the inheritance. If you're thinking about filing for bankruptcy, ask a bankruptcy lawyer how an expected inheritance might factor into your plans.
Will bankruptcy stop all the harassing phone calls and mail from bill collectors?
Yes! An "automatic stay" will take effect when you file your case. It will stop the creditor harassment.
Will bankruptcy stop a wage garnishment from a lawsuit over an unsecured debt?
Yes. The automatic stay will stop the garnishment.
What happens if I file and discover another debt after filing?
Your lawyer can amend your case to include any additional debts you may find after the case is filed.
Can I be held responsible for a debt that I co-signed?
Yes. You can be held responsible for any debt that you signed an agreed that said you would pay in the event that someone else failed to make the payments (co-signed).
Will I lose my social security payments if I file?
When will I get my discharge?
Generally a Chapter 7 bankruptcy discharge is received 60 days after the 341 meeting, or first meeting of creditors. In Chapter 13, your discharge will be sent to you once you have completed the payments under the Chapter 13 plan.