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Chapter 7 - Personal Bankruptcy FAQ
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Chapter 7 - Personal Bankruptcy FAQ
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Disclaimer - READ THIS FIRST!
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What is bankruptcy?
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Who can file bankruptcy?
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Is it true that I can wipe out all of
my bills?
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What are the most common reasons for
Chapter 7 bankruptcy?
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Can I stop the bill collectors from
calling?
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How long after I file will the
creditors stop calling?
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I am married. Does my spouse also have
to file?
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Will I lose my job?
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Can I go to jail if I file bankruptcy?
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Will my employer find out about my
bankruptcy?
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What happens to my personal property,
real property and other assets?
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Can I keep my home and personal
property?
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Can I keep my car after bankruptcy?
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Can I keep my house after bankruptcy?
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Can I keep my credit cards after
bankruptcy?
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Will bankruptcy stop a wage
attachment?
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Will bankruptcy stop a foreclosure?
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Will bankruptcy stop an eviction,
"unlawful detainer", action?
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Will bankruptcy stop a judgment?
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Will bankruptcy remove a lien?
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I am divorced. Will bankruptcy
wipe-out my obligation to pay community debts?
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I am a co-signer for a debt. How does
bankruptcy affect my obligation?
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Who notifies the creditors and bill
collectors?
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Are there any debts that I can't wipe
out in bankruptcy?
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Do I have to fill out forms?
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Do I have to go to court?
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What happens after I file my
bankruptcy?
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Who deals with the creditors and bill
collectors during the bankruptcy?
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What if I forget to list a creditor on
my bankruptcy papers?
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What happens to my credit rating after
bankruptcy?
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Can I get credit after bankruptcy?
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Is there anything I should not do if I
am contemplating bankruptcy?
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If I need to file bankruptcy again,
how long do I have to wait?
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Who can help me with my bankruptcy?
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Are there any alternatives to bankruptcy?
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How long will a BK stay on my
credit report?
1. Disclaimer:
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. Information dealing with Chapter 13
bankruptcy and consumer debt restructuring is not discussed in the
following FAQs. The information contained in the following FAQs is
provided for general information purposes only and is not intended to
be a legal opinion nor legal advice nor is it intended to be a
complete discussion of all the issues related to the area of Chapter 7
consumer bankruptcy. Every individual's factual situation is
different and you should seek independent legal advice regarding
specific information.
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 discharageable
debts. -
3. Who can file a Chapter 7
bankruptcy?
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You must reside or have a domicile, a place of
business, or property in the United States or a municipality.
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You must not have been granted a Chapter 7
discharge within the last 6 years or completed a Chapter 13 plan.
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You must not have had a bankruptcy filing
dismissed for cause within the last 180 days.
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It must not be a "substantial abuse" of
Chapter 7 to grant the debtor relief. Generally speaking, if after
you pay the monthly expenses for necessities there is not enough
money to pay the remaining monthly debts, then granting a discharge
would not be an abuse of Chapter 7.
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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.
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.
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.
5. What are the most common
reasons for a Chapter 7 bankruptcy?
The most common reasons for consumer bankruptcy
are: unemployment; large medical expenses; seriously over-extended
credit; marital problems and other large unexpected expenses.
6. 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.
7. 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.
8. 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.
9. Will I lose my job?
No. Bankruptcy laws prohibit discrimination based upon a debtor filing
for protection under the bankruptcy laws.
10. Can I go to jail if I file
bankruptcy?
No. There are no debtor's prisons in the United States. -
11. Will my employer find out about
my bankruptcy?
Under normal circumstances, unless your employer is a creditor, your
employer will not know. -
12. 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 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. Don't pick one that advertises in your local
paper.
13. 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.
14. Can I keep my car after
bankruptcy?
Depending upon which exemption scheme is
selected, you may keep your car if your equity is equal to or less
than the allowed exemption. Generally speaking, depending upon the
exemption scheme selected, you may exempt as little as $1200 or as
much as $9100. Use the Kelly Blue Book or a comparable guide to
calculate your equity . Subtract the amount still owing from your Blue
Book value to determine the amount of equity.
Most courts understand that you need a car to
earn the money that will get you back on your feet after bankruptcy.
Apply rules of common sense here. 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.
However, in some circumstances, your
representative can re-negotiate the loan or the lease to get a more
favorable deal for you.
15. Can I keep my house after
bankruptcy?
Depending upon which exemption scheme is
selected and depending on 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 know
the value, subtract the amount owed plus selling and transfer costs
from the value to calculate the equity. In depressed markets,
liquidated properties are often valued less than what we like to think
the property is worth.
16. 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.
17. Will bankruptcy stop a wage
attachment?
18. Will bankruptcy stop a
foreclosure?
Yes. However, a home is an asset usually secured
by a 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.
19. Will bankruptcy stop an
eviction, "unlawful detainer", action?
Perhaps. However, this will only delay the
inevitable. The owner is entitled to possession of his 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. I must caution you that if the only
reason you filed the bankruptcy is to stop an eviction, this may be
considered an abuse of Chapter 7. If the bankruptcy court finds that
this is true, the court can immediately dismiss the bankruptcy and
impose other legal and monetary sanctions on you. Also, in California,
laws have been passed favoring the landlords. Apparently, landlords
can evict even a tenant files a BK.
20. Will bankruptcy stop a
judgment?
Yes. Most civil judgments are stopped by
bankruptcy.
21. 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:
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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.)
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You didn't file a fraudulent return or try to
evade paying taxes.
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The liability is for a tax return (not a
Substitute or Return) actually filed at least two years before you
file for bankruptcy.
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The tax return was due at least three years
ago.
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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. §§
523(a)(1) and (7).)
22. 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 (divorce
case).
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.-
23. I am a co-signer for a debt.
How does bankruptcy affect my obligation?
You will not have to pay the debt if it is
dischargeable. However, the co-signer will become primarily
responsible for the debt. Be sure to list the co-signer as a creditor
in your schedules as they have a contingent claim against you.
24. 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. -
25. 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.
26. 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. The forms
have to be typed and a certain number of copies must be included with
the filing. Today, most attorneys use a computer system to prepare
these forms because of their complexity and voluminous nature.
27. 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. Do not worry. Your attorney will help you
prepare for the hearing and will be there to represent you. Sometimes,
after your hearing is over, various creditors will approach you to
discuss the status of secured property or your desire to retain a
credit card. Your attorney will negotiate with them, with your
knowledge and approval.
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. This is the
exception and only your attorney can determine if this is likely to
happen.
28. 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. -
29. Who deals with the creditors
and bill collectors during the bankruptcy?
Your attorney deals with your creditors. It may
be the only time you ever have the luxury of saying, "You'll have to
talk to my lawyer." -
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 sucks. Plain and simple.
However, you can reestablish credit and get an
"A" credit mortage three to fours years after the discharge of
bankruptcy. However, it may be very difficult to get a credit card
until the BK falls off of your report. For more information on
restablishing your credit, please see
rebuilding your credit. The bankruptcy
is a judgment and will be listed for a period of up to 10 years after
the discharge. -
32. Can I get credit after
bankruptcy?
Sure. For awhile though, expect to pay through
the nose in interest and fees. There is a whole new mortgage industry
springing into action loaning to people with less-than perfect (read
rotten) credit.
33. Is there anything I should not
do if I am contemplating bankruptcy?
This is a complex question and should be
discussed with your attorney. Generally, however, there are three
items worth mentioning:
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Under bankruptcy law, certain luxury purchases
over $1000 within 60 days of the bankruptcy filing are presumed
nondischargeable.
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Under bankruptcy law, cash advances agregating
$1000 within 60 days of the bankruptcy filing are presumed
nondischargeable.
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Debts involving materially false financial
statements are nondischargeable under certain circumstances.
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. Who can help me with my
bankruptcy?
We're just going to say it one more time:
the best person to help is your attorney. When you discuss your
situation with your attorney, you will need to be prepared to discuss
all areas of your case. This includes each and every debt you owe and
creditor you have. It is very important to list all your creditors in
your bankruptcy. One of the best ways to know all your creditors is to
get a Experian or other credit report about your credit history. This
should list the majority of your creditors, even ones you did not know
about. You should also have a post-bankruptcy budget prepared before
you go to the attorney's office. This budget should contain the income
and expenses you will have after you file your bankruptcy. -
Return
A Chapter 7 BK stays on your credit report for 10
years from the date the BK is discharged. However, it stays on your
court records for 20 years, as public record.
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