Frequently Asked Questions
Do I have other options other than filing for bankruptcy?
If you are inclined to file for Chapter 7 bankruptcy, take a moment to consider whether it makes economic sense. If filing for Chapter 7 won’t help you out of your current debt problems, will force you out of property you want to keep or is unnecessary because of your financial situation, then Chapter 7 might not be the best option. Alternatives include: doing nothing, negotiating with creditors, getting outside help to design a repayment plan, paying over time with Chapter 13 bankruptcy.
How will bankruptcy affect my child support obligations?
You will still have to pay child support. Moreover, child support payments, alimony, back child support, and alimony from property not included in the bankruptcy case are still in effect. Court proceedings to determine child custody and visitation, or to establish paternity in a lawsuit can still go on.
How long do I have to wait to rebuild my credit?
You can rebuild your credit immediately with a secured loan or credit card. In fact you can even obtain these items while going through the bankruptcy process.
How long does it take before my debts are discharged?
- Chapter 7 takes between 3 to 8 months
- Chapter 11 can take from just under a year to many years
- Chapter 13 can take several months while trying to get your repayment plan approved. However, the actual discharge is not final until you’ve met the payment plan requirements, which takes from 36 to 60 months to complete.
How long until my credit gets back to the point where I might hope to get a regular credit card or mortgage?
Rebuilding credit depends on how aggressively you try to get back on track, but don’t figure less than 1-3 years. Remember, you can always get a secured credit card or a mortgage with a low loan to value (LTV) and high interest rate, sometimes even still in the middle of a bankruptcy.
Can I keep any of my existing credit card accounts?
The credit card accounts that you have a zero balance on are not technically creditors and thus are not discharged in bankruptcy. Often these creditors will allow you to keep your credit with them.
Can I be fired for filing bankruptcy?
No, if your employer finds out about your bankruptcy, it is against federal law to discriminate against someone for filing bankruptcy.
So I exempted my vehicle, what happens to it?
You didn’t actually exempt the vehicle (or any asset) you really only exempted the equity (if any) in the asset . So, if you have a loan for $17,000 on a vehicle worth $20,000 then you exempt $3,000. However this does not mean you get to keep the car free. You only keep the vehicle if you make payments on it. However, if the situation were reversed and you owed $20,000 on a vehicle worth only $17,000 then you could choose to simply give the vehicle back and owe nothing.
Does my personal bankruptcy affect my corporation?
No. But your shares go to the trustee and may restrict your voting and transferring privileges.
What is the trustee’s job?
Finding assets with equity, liquidating them and then paying off the secured creditors. If any money is left, they also pay unsecured creditors based on priority.
If I change my mind after filing can I stop the bankruptcy?
Only the judge will decide if it may be dismissed or not. Even if you get the case dismissed your credit report will still show that you filed.
I thought bankruptcy stopped foreclosure? Can they still take my house?
When you file Bankruptcy, you receive an “automatic stay” on court actions such as foreclosures and sheriff’s sales. A creditor can still go into court and ask the bankruptcy judge for a “relief from stay”, and if granted the creditor can proceed with court action to foreclose.
What are the reasons a judge would allow creditors to take my home after I’ve filed bankruptcy?
- You filed a Chapter 7.
- You fail to file a reorganization plan or other required documents on time.
- You default on your scheduled Chapter 13 or Chapter 11 payments.
- Your income is insufficient to execute a reorganization plan within the court’s guidelines.
- The asset in question will not be needed to reorganize.
- The value of the asset is rapidly eroding.
What if I can’t make any payments, should I file Chapter 13 or Chapter 7?
If you truly cannot make payments on your home or other assets you’re probably better off filing Chapter 7 and using the money you would have spent on Chapter 13 to survive on.
Can I keep my house, cars or pets?
After filing you can exempt certain items such as a house or pedigree dog. However, to keep these items you’ll need to stay current on payments such as a mortgage or car payment.
Does my spouse and I have to file jointly?
No. The decision to file individually or together depends on your situation. For instance . . .
- If only one partner owns all or most of the debt then only that person should file;
- If both partners own the debt, and want to file a Chapter 7 then both should file;
- If you’re trying to stop a foreclosure, only one person, on the title to the home, need file a Chapter 13.
If only my spouse files, what am I liable for and what happens to my credit?
As long as there was no joint debt, your credit will not be affected. However, any future join credit purchases will depend upon the member with the worst credit history. On the other hand, if there was joint debt and only one member filed, then the member who did not file will be help responsible for the entire debt.
Lots of people file for bankruptcy, why shouldn’t I?
Bankruptcy is not something that should be entered into just for the heck of it. Very often there are intelligent alternatives to bankruptcy that may produce a far better result than going into bankruptcy. Bankruptcy also goes on your credit records, and may make it difficult to obtain new credit for years. Before anyone files for bankruptcy he or she should consult with a bankruptcy lawyer. There are critically important issues as to timing and disclosure that you had better address before, not after, you file for bankruptcy.
What is chapter 7, 11, 12, and 13?
Chapter 7 is the most frequently used chapter because it involves the complete liquidation of a debtor’s property, with the proceeds used to pay off the debts. However, the debtor can retain certain exempt property under Federal law and/or State law, such as tools of one’s trade, limited equity in a car and house, and some personal effects. If you use Chapter 7 you may lose your home (depending on your state) but it does enable you to get out from under the burden of debt more quickly.
Chapter 11 is typically used for business bankruptcies and restructuring. It is not commonly used by individual consumers since it is far more complex and expensive to pursue. It allows businesses to reorganize themselves, giving them an opportunity to restructure debt and get out from under certain burdensome leases and contracts. Typically a business is allowed to continue to operate while it is in Chapter 11, although it does so under the supervision of the Bankruptcy Court and its appointees.
Chapter 12 allows farmers with real estate debts to pay off the debts from the profits generated by future crops.
Chapter 13, which has also been known as a wage earner’s plan, is used by about 25% of consumers. In Chapter 13, consumers work out a periodic payment plan with their creditors to pay off their debts, or at least substantial portions of the debt. Generally the creditors expect to get more than they would have received from the debtor’s estate if the debtor had sought a complete liquidation under Chapter 7.
One of the important benefits of Chapter 13 is that debtors generally continue to live in their home so long as they comply with the terms of the Chapter 13 arrangement. If the debtor fails to comply, the Court treats the matter as a Chapter 7 liquidation. The disadvantage of Chapter 13 to the debtor is that the debts can linger for years, burdening future income.
What debts cannot be discharged in bankruptcy?
A non-dischargeable debt is one that will survive the bankruptcy proceeding. The debtor still has the obligation to pay this debt; the creditor has every right to collect. In general:
- Liens, such as mortgages and security interests in cars are non-dischargeable as are some other types of obligations including: Federal, State and local tax claims (subject to specific time rules)
- Customs duties
- Spousal and child support
- Most student loans
- Secured debts
- Fines and penalties imposed by government agencies
- Debts incurred due to false statements made with the intent to deceive
- Fraud committed in a fiduciary capacity, such as embezzlement or larceny
- Punitive damage claims for “willful and malicious” acts
- Debts not list on the forms filed with the Court
- Drunk driving obligations
What happens to my federal tax debts?
- It depends whether you file a Chapter 7 or a Chapter 13. A Chapter 7 debtor can wipe out federal income taxes if all the following are met:
- the IRS had not filed a prior tax lien on the assets you own (if they have, the lien survives bankruptcy, which means that the government may still seize property to collect the discharged tax debts);
- you didn’t file fraudulently or try to evade paying your taxes;
- your liability is for a tax return filed at least two years prior to the bankruptcy;
- the tax return was due more than three years ago; and
- tax deficiencies that were assessed on prior returns were assessed at least 240 days prior to the filing of the bankruptcy.
- In a Chapter 13 filing, you’ll pay the IRS as part of your repayment plan.
Sources: “How to File for Chapter 7 Bankruptcy,” by Attorneys Stephen Elias, Albin Renauer, J.D., and Robin Leonard, J.D.; Rich’s Enterprises, LLC, Prattville, Alabama; LegalResource.com
Note: Viewing these materials does not constitute an attorney-client relationship. No one should act upon this information without first seeking professional legal advice.
We don’t quite understand the structural downfall that created the housing crisis, either, but we do know this: We have solutions for you.
