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Chapter 7 Bankruptcy Facts
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1.
What is bankruptcy?
2. Who can file a bankruptcy?
3. Should I review my credit report before I file a bankruptcy?
4. Is it true that I can wipe out all my bills?
5. What are the most common reasons for Chapter 7 bankruptcy?
6. Can I stop the bill collectors from calling?
7. How long after I file will the creditors stop calling?
8. I am married, does my spouse also have to file bankruptcy?
9. Will I lose my job?
10. Can I go to jail if I file bankruptcy?
11. Will my employer find out about my bankruptcy?
12. What happens to my personal property, real property and
other assets?
13. Can I keep my home and personal property?
14. Can I keep my car after I file bankruptcy?
15. Can I keep my house after bankruptcy?
16. Can I keep my credit cards after bankruptcy?
17. Will bankruptcy stop a wage attachment?
18. Will bankruptcy stop a foreclosure?
19. Will bankruptcy stop an eviction, "unlawful detainer", action?
20. Will bankruptcy stop a judgment?
21. Will a bankruptcy remove a lien?
22. I am divorced, will bankruptcy wipe-out my obligation to
pay community debts?
23. I am a co-signer for a debt, how does bankruptcy affect
my obligation?
24. Who notifies the creditors and bill collectors?
25. Are there any debts that I can't wipe out in bankruptcy?
26. Do I have to fill out forms?
27. Do I have to go to court?
28. What happens after I file my bankruptcy?
29. Who deals with the creditors and bill collectors during
the bankruptcy?
30. What if I forget to list a creditor on my bankruptcy papers?
31. What happens to my credit rating after bankruptcy?
32. After bankruptcy, can I get credit?
33. Is there any thing I should not do if I am contemplating
bankruptcy?
34. If I need to file bankruptcy again, how long do I have to
wait?
35. Who can help me with my bankruptcy?
36. Are there any alternatives to filing bankruptcy?
1.
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is a liquidation proceeding. The debtor
turns over all nonexempt 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.
2. 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.
- 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.
- It would not be fundamentally unfair to grant the debtor relief under Chapter 7.
3.
Should I review my credit report before I file bankruptcy?
You should obtain
a copy of your personal credit report . It is the best tool for you
to use when filing for bankruptcy. It can first be used to gain a realistic
perspective of your financial situation and secondly, if you ultimately
choose to file bankruptcy it can be used to ensure all your creditors
are listed.
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 then it might be advisable to
have only one spouse file. In cases where real property is involved the question
regarding a joint bankruptcy is beyond the scope of this FAQ, see an attorney.
9.
Will I lose my job?
No. Bankruptcy laws prohibits 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?
Once the bankruptcy is filed, all the 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. 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 and the debtor will be able to keep it. 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 make
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. When calculating your equity
you should use the Kelly Blue Book or a comparable guide. Once you know the
value, then subtract the amount owed from the value to calculate the equity.
Generally, most courts understand that you need a car to work to get back
on your feet. 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 $8000 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 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 circumstance 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 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 the depressed California market, 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?
Under some circumstances you may keep your credit cards. There
are many factors which 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?
Yes.
18.
Will bankruptcy stop a foreclosure?
Yes. However, a home is an asset usually secured by a deed
of trust. The lender is entitled applyto 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. Usually, to keep a home that is in
foreclosure you will have to make a deal with the lender.
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 then this might be considered an abuse of Chapter 7. If the bankruptcy court finds that this is true then the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you.
20.
Will bankruptcy stop a judgment?
Yes. Most civil judgments are stopped by bankruptcy.
21.
Will a 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.
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. However, 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, remeber that if
you are discharged from community debts, your spouse is responsible for the
entire balance owing on the debt. Put another way, they shift the responsibility
on to you.
23.
I am a co-signer for a debt, how does bankruptcy affect my obligation?
If the debt is a dischargeable debt then you will not have
to pay it. However, the cosigner 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 there 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 be there
to represent you and your attorney will help you prepare for the hearing.
Sometimes, after your hearing is over, various creditors will approach you
to discuss the status of secured property or the your desire to retain a credit
card. Your attorney will negotiate with them, with your knowledge and approval.
After this hearing you will normally not need to return to court. However,
if a creditor files a motion or an adversary action, most likely you will
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 then
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, so be sure you be thorough and list everything.
31.
What happens to my credit rating after bankruptcy?
It sucks. You can reestablish credit though and be back in
"A" credit two years after the discharge of Bankruptcy. For more info on restablishing
your credit, please see our credit repair section.
Bankruptcy is a judgment and will be listed on your credit report for a period
of up to 10 years after the discharge.
32.
After bankruptcy, can I get credit?
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. Again, see
our section on credit repair.
33.
Is there any thing I should not do if I am contemplating bankruptcy?
There are several areas related to this question. You should
consult your attorney. In particular there are three items worth mentioning.
- Under bankruptcy law, certain luxury purchases over $1000 within 60 days of the bankruptcy filing are presumed nondischargeable.
- Under bankruptcy law, cash advances agregating $1000 within 60 days of the bankruptcy filing are presumed nondischargeable.
- 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 or 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 TRW 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 attorneys office. This budget should contain your income and expenses
that you will have after you file your bankruptcy.
36.
Is there any alternatives to bankruptcy?
In addition to Chapter 7 there are other alternatives available
under the bankruptcy laws. An in depth discussion of these alternatives is
beyond the scope of this FAQ. Aside from debtor protection under the bankruptcy
law there are some other alternatives. These include loan extensions, compromises,
workout agreements and taking no action. NOTE: These alternatives may
alert your creditors to existence of nonexempt property that the creditor
could reach. In any event you should seek professional advice in dealing with
most of these alternatives.
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