Chapter 7 Bankruptcy: Frequently Asked Questions
1. Will what you say apply to all individuals and business?
This information deals with Chapter 7 consumer bankruptcy. Each state has its own bankruptcy laws, so you need to check with your state for details. When we prepare petitions, we have special software that allows us to prepare your petition pursuant to your state's laws. We have not discussed questions dealing with Chapter 13 bankruptcy. Remember that every individual's factual situation is different and you should seek independent legal advice regarding specific information. I am only licensed as an attorney in the State of Indiana.
2. What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts.
3. Who can file a Chapter 7 bankruptcy?
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. You must pass this means test. It would not be fundamentally unfair to grant the debtor relief under Chapter 7.
4. Is it true that I can wipe out all my bills?
The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding. HOWEVER, not all debts are dischargeable. Generally speaking, the following debts will not be discharged: taxes; spousal and child support; debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; student loans; criminal fines and penalties and forfeitures. If the debt is secured by a mortgage or lien, the debt can be discharged, however expect the creditor to take the necessary legal steps to take back the property. If you wish to keep secured property, you must reaffirm the debt and continue making payments per the reaffirmation agreement.
5. Do I have to go to debt counseling classes?
Yes. Within 6 months before filing a Chapter 7 bankruptcy, you must you must get credit counseling from a government approved organization within six months before you file for bankruptcy protection. You can find a state-by-state list of government-approved credit counseling organizations at www.usdoj.gov/ust. In addition, before you can complete the Chapter 7 Bankruptcy proceedings, you must also complete a financial education. Here is the list of approved companies offering financial education for your area : http://www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm
6. What are the most common reasons for a Chapter 7 bankruptcy?
The most common reasons for consumer bankruptcy are: unemployment; large medical expenses; marital problems and other large unexpected expenses. Most people do not just run up their credit cards irresponsibly with the expectation that you can just wipe out the debts in a bankruptcy.
7. Can I stop the bill collectors from calling?
One of the major benefits of filing for protection under Chapter 7 is that many creditor actions are stayed. This means that debt collection efforts and foreclosure is halted.
8. How long after I file will the creditors stop calling?
Once a creditor or bill collector becomes aware that you have filed for bankruptcy protection, he/she must stop all efforts to collect the debt. After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditor immediately. 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.
9. I am married. Does my spouse also have to file bankruptcy?
No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable, it might be advisable to have only one spouse file. You must be careful about filing separately if, as a couple, you own joint debt and property. See our divorce section.
10. Will I lose my job?
No. Bankruptcy laws prohibit discrimination based upon a debtor filing for protection under the bankruptcy laws.
11. Can I go to jail if I file bankruptcy?
No. There are no debtor's prisons in the United States.
12. Will my employer find out about my bankruptcy?
Under normal circumstances, unless your employer is a creditor, your employer will not know. However, most employers are pulling credit reports for new job applicants. If you leave your job, your new employer will probably know that you had a bankruptcy.
13. What happens to my personal property, real property and other assets?
All property of the debtor at the time of the filing (and certain other property to be received in the future) becomes the property of the bankruptcy estate once bankruptcy is filed. This means that the bankruptcy trustee will ostensibly [in legal theory, but not actually] take control of this property for purposes of satisfying the creditors. HOWEVER, there is certain property which is either excluded or exempt which the debtor will be able to keep. Property or asset exemption are determined based upon your situation, income and the laws of your state. The best way to determine which property to keep requires a detailed analysis of your situation. You need a good lawyer.
14. Can I keep my home and personal property?
As for real property in many states, dependent upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you determine this value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity.
As for personal property, in California, you are permitted exemptions for a variety of personal property. This includes, automobiles, household furnishings and personal effects, jewelry, tools of the trade, retirement plans, unmatured life insurance, personal injury awards, earnings, animals and some other miscellaneous property. The value of each exemption and which exemptions can be used are determined by the statutory exemption scheme is selected. Again, state laws vary. Talk to an attorney in your state.
15. Can I keep my car after bankruptcy?
If there is security put in place within 3 years on your vehicle, you must pay the full amount owed or lose the vehicle.
If you own vintage cars which are free and clear and worth thousands of dollars, you are probably not going to be able to keep them. If, on the other hand, you have a car worth $10,000 and you owe $8,000 on it, you will most likely keep it. Again, the need to talk to a good lawyer should be evident. Most leased vehicles have no equity and therefore are entirely exempt. If you owe money on your car, or if it is leased, you must still make the payments. In those instances you will have to redeem or reaffirm the property to keep it.
16. Can I keep my house after bankruptcy?
The exemption is limited to $125,000 of your state's homestead exemption if the property was acquired within the previous 1215 day (3.3 years). The cap is not applicable to any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period). How does this work?
Example 1: In Arizona, the homestead exemption is $100K. No matter when you have acquired your home, the amount of equity you are allowed to keep in your home is $100K. If you have more equity than this, you will probably be forced to sell.
Example 2: Kansas, Texas, Florida, Iowa, and South Dakota have unlimited homestead exemptions. So if you have $1 million in equity in your $2 million dollar Texas mansion, and you've owned it more than 3.3 years before filing a bankruptcy, the equity is completely exempt. If you bought it within the last 3.3 years, you are only allowed to have $125K in equity.
17. Can I keep my credit cards after bankruptcy?
You may keep your credit cards under some circumstances. Many factors 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.
18. Will bankruptcy stop a wage attachment?
Yes.
19. Will bankruptcy stop a foreclosure?
Yes. However, a home is an asset usually secured by a mortgage or deed of trust. The lender is entitled to apply to the court for relief from the automatic stay, the order preventing creditor action by virtue of the bankruptcy. Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. You usually have to make a deal with the lender in order to keep a home that is in foreclosure.
20. Will bankruptcy stop an eviction, "unlawful detainer," action?
Perhaps, but only for a short time. The owner is entitled to possession of the property and at best you will be able to remain in the property until you have received your discharge from bankruptcy or the landlord obtains an order from the bankruptcy court.
21. Will bankruptcy stop a judgment?
Yes. Most civil judgments are stopped by bankruptcy.
22. Will bankruptcy remove a lien?
Under some circumstances once the bankruptcy proceedings have started, special motion can be filed to remove certain liens. It will take a bankruptcy court order to remove them. This is a complicated area of the bankruptcy law and an attorney should be consulted. However, here are the guidelines for removing tax liens:
You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are true:
1. The IRS has not recorded a tax lien against your property. (If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect.) 2. You didn't file a fraudulent return or try to evade paying taxes. 3. The liability is for a tax return (not a Substitute or Return) actually filed at least two years before you file for bankruptcy. 4. The tax return was due at least three years ago. 5. The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least 240 days (eight months) before you file for bankruptcy. (11 U.S.C. ยงยง 523(a)(1) and (7).)23. I am divorced. Will bankruptcy wipe-out my obligation to pay community debts?
In general, you will be discharged from all dischargeable community debts in the eyes of the court. In the eyes of the creditors, it is another thing. You should discuss this with your family law attorney to understand the other implications of the filing of a bankruptcy during the pendency of a dissolution action. Also, remember that if you are discharged from community debts, your spouse becomes responsible for the entire balance owing on the debt. Put another way, the debt does not go away; it simply shifts from you to your spouse. Which, depending on your feelings for your spouse, might not be a bad thing.
24. I am a cosigner for a debt. How does bankruptcy affect my obligation?
You will not have to pay the debt if it is dischargeable. However, the cosigner will become primarily responsible for the debt. Be sure to list the cosigner as a creditor in your schedules as they have a contingent claim against you.
25. Who notifies the creditors and bill collectors?
After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditors immediately.
26. Are there any debts that I can't wipe out in bankruptcy?
Yes. There are certain debts that are NOT dischargeable in bankruptcy. Generally speaking, the following debts will not be discharged: taxes; spousal and child support; debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; student loans and criminal fines, penalties and forfeitures.
Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases if the debtor's equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation.
27. Do I have to fill out forms?
If you file the bankruptcy yourself, you must fill out the forms. There are several forms. There could be between 30 and 60 pages in your petition, schedule and other papers filed at the time of your bankruptcy. You must follow the local and federal bankruptcy court rules in completing the forms. Preparing these forms requires an understanding of both bankruptcy law and local state law in order to enter the information correctly and accurately. We prepare forms if you wish for us to do so.
28. Do I have to go to court?
Yes. About 30 to 40 days after you file the bankruptcy you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing, the trustee will ask questions under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will be permitted to question you. You will normally not need to return to court after this hearing. However, if a creditor files a motion or an adversary action, you may have to return to court.
29. What happens after I file my bankruptcy?
Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 75 days after the First Meeting of Creditors.
30. What if I forget to list a creditor on my bankruptcy papers?
You are permitted to file an amendment to your schedules up to a certain time before discharge. If the amendment is timely filed, the omitted creditor is added to the bankruptcy. It is perjury to intentionally omit a creditor. However, if you do not know that a creditor exists and there are no assets for your creditors, the debt will be discharged. This is a hassle after the fact. Be thorough and list everything when you prepare your schedules.
31. What happens to my credit rating after bankruptcy?
It will be adversely affected. However, ask us how to recover your credit after bankruptcy.
32. Can I get credit after bankruptcy?
We suggest debit cards for "pay as you go" ease. To rebuild credit it will be a bit more costly, but very possible. Again, ask us how to recover your credit after bankruptcy.
33. Is there anything I should not do if I am contemplating bankruptcy?
Generally, there are three items worth mentioning:
34. If I need to file bankruptcy again, how long do I have to wait?
You must wait 6 years to file again. If your bankruptcy was dismissed, you must usually wait for 180 days to refile.
35. How long will a Bankruptcy stay on my credit report?
A Chapter 7 bankruptcy can stay on your credit report for up to 10 years from the date the bankruptcy is discharged. However, it stays on your court records for 20 years, as public record.
36. Do I need to be a citizen to file a bankruptcy?
No, you don't have to be a resident. If you are a non-citizen, but have a Social Security card or a Tax ID, you can file a bankruptcy. If you don't have a United States ID, but own property in the U.S., you can still file a bankruptcy.
