FAQs

Q.

What is a Chapter?

A.

Chapter 7 is the most common type of bankruptcy. It is sometimes referred to as “liquidation bankruptcy,” or “straight bankruptcy.” The basic purpose of Chapter 7 is to provide you with a fresh start by wiping out all qualifying debts including credit cards, medical bills, repossession deficiencies, lawsuits, as well as a variety of other debts. Bankruptcy lawyers can help with the process. In Chapter 7 there is no repayment required for most unsecured debts, your debts are wiped out completely and permanently.

In about 99% of Chapter 7 cases, the consumer keeps all property, and eliminates most debts. The entire process usually takes less than 4 months to complete. After the bankruptcy is over, the consumer may choose to selectively pay back debts, such as debts to family members, however repayment is not legally required.

Chapter 13 provides consumers with a way to consolidate debt under federal law and repay creditors a portion of what is owed over time. The idea behind Chapter 13 is that the consumer makes sufficient income to pay all current living expenses (rent, food, car, utilities, etc.), but not enough to pay off all debts in full or comply with creditor’s demands. In Chapter 13, living expenses are paid first, then whatever is left over goes into the consolidation plan. The plan is not based on what you owe (in most cases), it is based on your ability to repay creditors. The calculation of your plan payments involves many variables, but most importantly it is based on your income and expenses. Whatever is left at the end of the month goes into the plan, even if it only pays creditors pennies on the dollar. Chapter 13 can be particularly useful for consumers with assets over the exemption amounts, or non-dischargeable debts.

Q.

Will bankruptcy stop wage garnishments?

A.

Yes. Once your case is filed, creditors are no longer entitled to garnish your wages for debts that existed at the beginning of the case. The only exception may be for on-going child or family support ordered by a court.

The discharge of a debt will forever eliminate a creditor’s right to garnish your wages on account of that debt.

Q.

Can I keep my car?

A.

Yes. What you must do to keep your car varies depending on whether there is non-exempt equity in the car.

Q.

Will the trustee take the car?

A.

If there is no equity in the car, after subtracting any car loan and exemption from the car’s present value, the bankruptcy trustee will not take the car. If there is equity in the car over and above the value of the exemptions available, a debtor can usually buy any unprotected equity from the Chapter 7 trustee.

Q.

Will the creditor take the car?

A.

If you still owe money on the car, you can choose to reaffirm the debt to the secured lender, keep the car, and continue paying under the existing terms; or you can buy the car from the secured creditor in a single payment for its present value (redemption). If you choose, you can surrender the car and be free of any obligation to pay for it.

Q.

Will I lose my house if I file bankruptcy?

A.

Not necessarily.

Is there equity in the property?
If there is no equity in the house (today’s value less costs of sale less payoff balances on all liens) the trustee in a Chapter 7 will abandon the house to you. That is, you keep it, as long as you pay the mortgages.

A bankruptcy does not relieve the property of the liability for voluntary liens, like mortgages or deeds of trust, nor for tax liens. So, the lender retains the right to foreclose if you don’t pay.

If you pay, everyone is happy. Remember, the lender doesn't want the property; it wants you to pay regularly on the loan. Foreclosure is a last resort for the lender if it concludes it can’t get its money any other way.

If there is equity:
Determine whether the exemptions available to you equal or exceed the equity in the property. If the equity is all-exempt, you can keep the house, so long as you pay the mortgages.

If the exemption is not sufficient to protect the equity, consider Chapter 13.

Q.

Do I have to list all my debts?

A.

Yes, you must list all of your debts on your bankruptcy schedules. However, you can choose to reaffirm any debt or debts you choose after the filing. Or, you can voluntarily pay a creditor after you receive a discharge, without becoming legally liable to continue paying. Thus listing a creditor does not prevent you from paying creditors you wish to pay after bankruptcy.

Also, omitting a credit card company from your schedules, because you want to retain the use of the card, does not assure continued access to the card: most major credit card issuers use a national data base to determine who has filed bankruptcy, independently of the court's notice to them of bankruptcy filings. They routinely cancel cards of everyone who has filed bankruptcy, whether or not a balance is owed.

You can't assure that your creditors won't find out about your bankruptcy by not listing a debt. And omitting a debt constitutes perjury which could result in your discharge being denied. See denial of discharge.

Q.

Can I get credit after bankruptcy?

A.

Filing bankruptcy does not prevent you from getting new credit. An entire class of lenders targets the recently bankrupt as customers! Immediately after a bankruptcy filing, you can expect credit to be more difficult to get, more expensive, and limited in amount.

Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms just as good as those with the same financial characteristics who have not filed bankruptcy. That is, in getting a home loan after a bankruptcy, the size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.

While the fact that you filed bankruptcy stays on your credit report for 10 years, it becomes less significant the more time elapses. In fact, you are probably a better credit risk after bankruptcy than before.

Q.

Can I put my assets in someone else’s name before filing?

A.

Such transfers are not effective to put your assets beyond the reach of creditors and bankruptcy trustees. Worse, such action may lead to the denial of your discharge (11 U.S.C. 727).

A bankruptcy trustee can recover assets transferred within one year of the bankruptcy filing where the debtor did not get reasonably equivalent value for the asset, or where the transfer was made with intent to hinder creditors. The "look back" period may be even longer under the law of your state, giving the trustee that same state law look back period in which to recover assets.

If you have more assets than you can protect with the available exemptions, consider filing Chapter 13 where the debtor generally keeps all of their property and "buys back" the non exempt value from the creditors through payments to the Chapter 13 trustee out of future income.

Q.

Can I file bankruptcy without a lawyer?

A.

Remember the old adage that "he who represents himself has a fool for a lawyer"? There is some truth there.

The paralegal services and on-line bankruptcy providers try to characterize filing bankruptcy as "just filling out forms". That's just as true as seeing tax preparation as "just filling out forms"; and the tax forms come with instructions written for the non professional. Bankruptcy forms do not.

Bankruptcy law is extremely complicated. Comprehensive knowledge of the Federal Bankruptcy law and attention to detail is a must for a successful filing, court appearance and discharge of your debts.

The more assets you have to lose in a botched bankruptcy, the more it is worth your while to pay a lawyer to protect them in a bankruptcy proceeding.

The bankruptcy amendments of 2005 have now studded the Bankruptcy Code with situations in which dismissal of cases is automatic and the relief available when you refile is strictly limited. The means test forms, new in October 2005, are difficult to get through and easy to fill out incorrectly.

Most common mistakes in pro per filings:

  1. EXEMPTIONS ARE NOT SELECTED OR APPLIED TO PRESERVE ASSETS.
  2. PROPERTY IS OMITTED FROM THE SCHEDULES. Debtors forget to schedule intangibles like stock options, partnership interests; interest in pending probate estates; trust funds; lawsuits filed or potential; tax refunds, etc.
  3. CREDITORS ARE OMITTED. This is either because debtors think that only a certain kind of creditor should be listed, or they omit a creditor because they want to repay the debt.
  4. DEBTORS TRANSFER ASSETS OUT OF THEIR NAME BEFORE FILING FOR BANKRUPTCY. This is a no-no.

These mistakes can lead to the loss of assets that could have been saved for the debtors, to less relief than was available by law, or, in extreme cases, to denial of the debtor's discharge.