1. What types of bankruptcy are there?
For most people, the options are Chapter 7 and Chapter 13.
Chapter 13 is a liquidation. That is, the Debtor is seeking to discharge debts rather than make a plan of repayment. It is a much quicker and less expensive process than a Chapter 13. However, your non-exempt assets may be sold by the bankruptcy trustee to partially satisfy claims of creditors. You are permitted to exempt or protect assets as allowed by law. In most instances, debtors do not lose any assets in filing a Chapter 7. The client should discuss assets with the attorney at the initial consultation to determine whether the client has any assets that may not be exempt.
Chapter 13 is a reorganization. The debtor proposes a plan of repayment to creditors based upon available income. In most instances, a debtor is not required to repay creditors in full and in most instances creditors are not paid interest on the debt. Unlike Chapter 7, debtors very rarely risk having to give up an asset in a Chapter 13, although non-essential assets that debtors are still paying for may be required by the Court to be turned in to the lender. Chapter 13 plans typically range from 3 to 5 years depending upon each debtors particular circumstances.
2. What type of debt can I discharge?
Generally, most debts are dischargeable. That is, they do not remain due after the debtor receives his or her discharge.
Some debts have been declared not dischargeable. Common examples would be recent income taxes (within 3 years), withholding taxes, child and spousal support, debts ordered repaid in a domestic case, student loans, court fines, and debts determined by law to have been obtained by fraud.
3. Can I keep my home and vehicle if I file?
In most instances, debtors may retain their home and vehicles. In a Chapter 7, loans secured by homes or vehicles may be reaffirmed provided the loan is current. Homes or vehicles owned free and clear may be claimed as exempt provided that the values fall within the limits prescribed by law. In Chapter 13, these assets generally can be retained with payments, if still owing, being paid through the plan.
4. What effect will a bankruptcy have on my future credit?
The filing will be reported to the credit reporting entities and will remain a part of the debtor’s credit report for 7 to 10 years. The debtor may, upon discharge, be able to obtain credit, however, but may be required to repay at a higher interest rate.
5. Will creditors have to leave me alone?
Filing a bankruptcy case, Chapter 7 or Chapter 13, invokes the automatic stay which stops creditors from collecting on debts. After filing, all telephone collection calls must cease. The stay also stops most legal actions to collect debts or obtain the return of property. A vehicle could not repossessed once the stay is in place and a vehicle repossessed prior to the filing but not yet sold must be returned if the debtor files a Chapter 13. A foreclosure would be halted provided the sheriff’s sale has yet to occur.
The stay does stop an eviction if the landlord has obtained an order grant the eviction prior to the bankruptcy being filed. The stay also does not halt criminal actions taken against the debtor.
6. What are the requirements to file a bankruptcy?
In order to file and obtain a discharge in a Chapter 7, the debtor must not have filed and received a discharge in a previous Chapter 7 within the prior 8 years or a Chapter 13 within the previous 6 years, absent specific circumstances. A debtor is not eligible to obtain a discharge in a Chapter 13 if the debtor has filed and received discharge in a prior Chapter 13 within 2 years or in a previous Chapter 7 filed within the last 4 years.
To be a debtor in a Chapter 13, the debtor must have regular income and it must be sufficient to allow a plan of repayment to be prepared. To be eligible to file and obtain a discharge in a Chapter 7, a debtor must qualify under the means test. This is a mathematical determination, based upon six prior months income and allowed deductions, of whether the debtor has a statutorily determined ability to pay.
7. What steps do I have to take to qualify to file bankruptcy?
A debtor can contact our office for an initial free consultation. The purpose of the consultation is to permit the debtor to ask questions and receive additional information regarding the specific requirements of filing bankruptcy and how those requirements may apply in the client’s specific circumstances.
Once the client has decided to file and hire an attorney, the client will be given forms and instructions for the information required by law to be provided in each case. Once provided to the attorney’s office, his staff will prepare the paperwork for filing and schedule a time for the client to come in and review the documents prior to filing.
The debtor must complete a credit counseling course prior to the filing and a second financial management course to obtain a discharge. The attorney can provide information regarding sources of these courses.
The debtor must also appear one time at the courthouse for the Meeting of Creditors. This is a meeting whereby the bankruptcy trustee will inquire as to the financial circumstances regarding the debtor and the bankruptcy filing.
8. If I am married, must my spouse file as well?
You spouse need not file if your spouse did not sign indication an intent to be responsible for the debts. Simply being married to someone who incurs debt does not result in the spouse also being liable.
If you are married and living with your spouse, the income and expenses of your spouse must be listed on the bankruptcy schedules. If your spouse is also liable for a debt that you intend to retain, the fact that your spouse is also liable must not be disclosed, but your spouse need not file if you intend to keep any joint debts.
9. Will my employer be told I filed? Can I be fired if I file?
Not generally. Payment for a Chapter 13 are made by payroll deduction, so if you are employed and your employer withholds for taxes, you must pay your plan with a payroll deduction.
Your employer is forbidden by law from discriminating against you just because you filed for bankruptcy. Firing an employee for filing bankruptcy is against the law and could lead to sanctions against the employer.
10. Are there some debts I cannot discharge?
Yes. Child support, spousal support, student loans, and most taxes are not dischargeable. You should discuss these matters with your attorney to determine if they may be dischargeable.