If you are considering filing for bankruptcy, or have a friend or relative who is, you probably have questions. We’ve grouped together some common questions that we receive from our clients as their bankruptcy claims are processed. Keep in mind that every case is different. But the answers we’ve provided can be used as guidelines and will give you a general idea of what to expect.
Exactly what is bankruptcy?
Bankruptcy is a legal proceeding provided by federal law that allows those who are unable to pay their bills to obtain a fresh start. Included in the U.S. Bankruptcy Code are two options for individuals in financial trouble. Chapter 7, also called straight bankruptcy, and Chapter 13, the Wage Earner Plan, are ways you can regain financial stability.
What does bankruptcy accomplish?
- It stops wage garnishment and collection harassment
- Cancels out most debts
- Stops repossession of property
- Stops mortgage foreclosure
Is a court appearance required?
You have to go to a meeting called the “meeting of creditors” to meet with the bankruptcy trustee and any of your creditors who choose to come. Most of the time, the meeting is simple and short. You will be asked a few questions about your case. In most cases creditors do not attend the meeting.
Is it mostly people who “live high” who are involved in personal bankruptcies?
Not at all. Occasionally a celebrity such as a movie star gets publicity for filing bankruptcy, but this is not typical. Usually it is an ordinary working person who has lost his or her job, gone through a divorce, is temporarily disabled, or has unexpected high medical bills. These circumstances make it difficult for the person to pay off all of his or her creditors.
Are there more personal bankruptcies than business bankruptcies?
Yes. About 90 percent of bankruptcies filed are personal.
Are bankruptcies usually filed for large amounts of money?
No. Usually one creditor is putting the pressure on and demanding all payments at once, including those that are in arrears. The trouble is that all of the debtor’s other creditors also want payment, and there just isn’t enough money to go around.
Does easy credit contribute to a large number of personal bankruptcies?
Yes. Creditors make it so easy to get credit that we find a number of people become overextended. Often they don’t realize how deeply in debt they are because they keep paying their bills with new loans. Once a person’s credit runs out, it’s too late. Creditors begin to call and harass them for delinquent payments.
When is my bankruptcy filing effective?
The moment the court receives the completed petition. When your petition is filed, all suits, wage attachments and other collection activities against you must be stopped. Once you have filed bankruptcy, your attorney will discuss which bills you must pay and the ones you are legally entitled to stop paying.
If I file bankruptcy, will my credit rating be ruined for seven years?
Creditors will often say this to discourage you from filing bankruptcy. There is no federal or state law that prevents you from buying on credit after bankruptcy. Keep in mind that if you are 60 to 90 days behind on your bills, have been sued or had your wages attached, had a repossession, a home foreclosed on or have debts in a collection agency, you probably cannot buy on credit now. According to the Fair Credit Reporting Act, Chapter 7 and Chapter 13 will go on your credit record, and may remain there for 10 years. However, the large local credit reporting firms remove Chapter 7 after nine years and nine months, and Chapter 13 after six years and nine months.
Will the court take any of my property?
In most cases, you are able to keep your home and car and much of your personal property including savings, furniture and household goods.
What if I return goods such as furniture, appliances, or a car that I owe money on?
Then you will no longer owe any money. This means you have the choice of continuing to pay for goods and keeping them or returning them and no longer owing the debt.
Does filing bankruptcy get your creditors “off your back”?
Yes. When your attorney files your petition with the bankruptcy court, a court order immediately takes effect. It will prevent your creditors from harassing you for payment at home and on the job and from contacting friends, relatives or your boss. Your creditors cannot repossess your property (without specific court permission) or garnish your wages. Even the state tax authorities and the Internal Revenue Service cannot bother you.
Will filing bankruptcy cause me to lose my job?
That would be most unusual. In most cases your employer won’t even know about it. Usually, when an employer knows that an employee is having financial problems, it doesn’t matter if the employee files bankruptcy as long as he gets his mind back on the job.
Who will notify my creditors that I have filed bankruptcy?
The court or the trustee will notify your creditors.
What makes people decide to file bankruptcy?
When people think that their debt is no longer manageable and they have more debt than they can repay, they may decide to file bankruptcy to regain financial stability and restore peace of mind.
Must I list all my bills on my bankruptcy petition?
Yes, you must list them all. However, you can pay any creditors you choose after you file your petition.
Must I list credit cards or charge accounts I do not owe money on?
Do I need permission from my spouse to file, and will my husband/wife then be responsible for the bills?
If the two of you were jointly liable on a debt, the non-filing spouse will continue to be responsible for that bill. It is usually necessary for both husband and wife to file if they are jointly responsible for many of their bills.
How about credit union payments that are being deducted from my paycheck?
The credit union will be required to stop deducting money from your paycheck.
What will happen to the garnishment that is currently being taken from my wages?
This will be stopped within a short time after your petition has been filed.
Will I be able to keep such items as clothes, records, books, kitchenware, bedding, linen, and similar items that I have bought on credit but will not be paying for because bankruptcy has discharged my debt?
Yes. Only items that have monetary value are of interest to creditors. Because the above items have little or no value, they are of no interest to your creditors. In most cases, these items are also exempt according to New York State law.
Can I file if I’m married, divorced, separated, in the middle of a divorce, widowed, unemployed, employed, on welfare, or if I am not a citizen?
Yes. Your civil status has no bearing on filing bankruptcy.
Can I buy a home, change jobs, start a business, buy furniture or a car, or move to another city or state after I file bankruptcy?
Yes. Bankruptcy does not bar you from your normal daily activities, your civil liberties, or rights.
May I file if I have debts in another city or state?
What is a Chapter 7 Bankruptcy?
Chapter 7 or Straight Bankruptcy allows an honest debtor to have the court “discharge” or cancel most of his or her debts in order to obtain a fresh start.
What if I earn a lot of money after I file? Will I have to repay the bills?
No, you won’t. The court cannot order you to pay bills out of future income, wages, commissions, or profits that you may receive.
What happens if I bought a car financed by a bank, credit union, auto finance company, or other creditor?
You will be able to keep your car. However, you must continue to make the monthly payments on time, and you must sign a reaffirmation agreement in which you promise to make those payments.
What kinds of bills are discharged in Chapter 7?
These bills will be discharged:
- Medical bills, including hospital and doctor fees
- Back rent, telephone, and utility charges that are in arrears
- Bank, credit union, signature loans, veterans’ assistance loans, and finance company loans
- Revolving credit such as MasterCard, Visa, American Express, and oil company credit cards
- Attorneys, legal, and court fees
- Overdrafts or deficiency balances on bank accounts
- CD, DVD, or book clubs
- Storage fees, leases, and rentals
- Most debts owed due to a car accident
- Most business debts
Are there any time limits on the bills that I want to have discharged?
You can include bills you haven’t paid for five, 10 or more years, and those that are only a week old. However, if you have incurred a large bill shortly before filing, that bill might not be discharged. This rule usually applies to a consumer debt of more than $500 owed for a luxury item to a single creditor for purchases made within 90 days of filing, or for cash advances of more than $750, which have been incurred within 70 days of filing.
Do I ever have to repay the bills that I list on my bankruptcy petition?
No, unless you choose to do so.
Is there any alternative to filing Chapter 7?
Yes. You can file a debt consolidation plan under Chapter 13. A large proportion of those who file bankruptcy could pay all or some of their bills through Chapter 13 if they knew more about it.
How soon after I file Chapter 7 bankruptcy can I file Chapter 7 again?
What are the advantages of choosing a Chapter 7?
- You would discharge most of your debts and be able to start again without a deficit budget.
- All collection and garnishment attempts would stop.
- If money problems had been seriously affecting your psychological well-being or your marriage, these problems may be relieved by filing a bankruptcy petition.
- You can usually choose before you file what property will be exempt and, therefore, what you will keep.
- You can fulfill any ethical or moral obligation you feel by voluntarily repaying or making a partial repayment to anyone after your debts are discharged or by reaffirming that debt.
Exactly how does Chapter 13 work?
A Chapter 13 plan permits individuals who have a steady source of income to pay part or all of their debts under protection of the bankruptcy court. If you file Chapter 13, you file a petition and a plan with the bankruptcy court. The bankruptcy law requires that the payments you make through the plan to unsecured creditors have a value of at least what the creditors would have received if you had chosen to file a Chapter 7 case.
Who can file a Chapter 13 plan?
Only an individual or a married couple, not a corporation or partnership, can file a Chapter 13.
Must you be employed to use a Chapter 13 plan?
Generally, yes, but if you have regular income from self-employment, a pension, Social Security, unemployment insurance, welfare, union benefits, Disability insurance, alimony, odd jobs, income from family members, or child support, a Chapter 13 plan still can be used. Many small businesses–those owed by individuals–can file and obtain the benefits of Chapter 13.
How are new bills handled after you file Chapter 13?
Chapter 13 mainly deals with your old bills. Your usual living expenses for rent or mortgage, food, clothing, insurance, and utilities will come out of your remaining income after your Chapter 13 payment is made.
Is it true that under Chapter 13 cosigners on consumer debts are also protected?
Those who cosigned for you on various loans or purchases will not be affected by your Chapter 13 plan as long as you pay 100 percent of the debt they have cosigned, including interest required in the loan agreement. If not, creditors can approach cosigners for the balance of the debt immediately. Keep in mind that you can choose to pay 100 percent of a cosigned debt yet only pay a small portion of your other debts.
Is the cosigner’s record affected?
The cosigner’s credit record may already be marked with slow pay if you were late with payments prior to filing. The Chapter 13 plan may also cause the cosigner’s record to be marked slow pay.
Can I consolidate all my bills?
Yes, except your post-petition mortgage payments. Unless special circumstances exist, your post-petition mortgage payments will be paid on your own, outside the Chapter 13 plan. Any mortgage payments that you missed prior to filing your plan (pre-petition payments) will be included in the plan.
Can my creditors stop me from filing a Chapter 13 plan?
No, creditors cannot stop you from exercising your right to file under Chapter 13. Creditors will sometimes tell you that they “will not accept the filing” or that they “will prevent the court from accepting the filing.” Don’t believe these statements. Let your lawyer or paralegal advise you how your plan will work.
How long does a Chapter 13 plan last?
The usual time frame is 36 months. However, you can pay off your plan sooner if you wish, and with special court permission you can extend your plan to 48-60 months.
What are the usual costs involved in filing a non-business Chapter 13?
Costs, including disbursements, may vary depending on your case. The attorney’s fee and disbursements must be approved by the court. In many cases a substantial part of the fee and disbursements can be included in the plan with the rest of your bills. If your case is more complex or involves a business, a higher fee will be required.
Is it true that if you filed bankruptcy in the past six years, you can still file a Chapter 13 plan?
Yes. You cannot file a second bankruptcy (Chapter 7) within 8 years of the first, but you can file a Chapter 13.
What happens to my Chapter 13 plan if I cannot work for a while because I am ill, injured, or have lost my job?
The court and the Chapter 13 trustee will give you an opportunity to explain your situation and will keep your Chapter 13 plan in place if your Disability is temporary or your lack of work is not too prolonged.
Do I need permission from my spouse to file?
No. Any person who is employed or has a regular income can file at any time.
To whom will I make my Chapter 13 payments?
Usually payments are deducted from your paycheck and sent to the office of the Chapter 13 trustee for distribution to your creditors.
May I file a Chapter 13 if I am self-employed or own a small business?
Yes. The Bankruptcy Code allows for those who are self-employed and those who are in a sole proprietorship to file Chapter 13.
Will Chapter 13 stop mortgage foreclosures, late charges, and added interest on past-due bills?
Generally speaking, yes. If your plan calls for it, the court may approve a plan in which you are given an extension period to catch up on back payments on your mortgage.
Can I file if my income is from SSI, Social Security Disability, veterans assistance, or other monetary assistance?
As long as these payments allow you to pay rent, food and other necessities of life together with your Chapter 13 payment, your petition will probably be approved by the court.
Do I need a cosigner of any kind to file Chapter 13?
What if you are in Chapter 13 and run into additional financial difficulty?
If you fail to make a substantial number of your payments to the trustee, he will ask the judge to dismiss your case. If the case is dismissed, the collection calls will begin again, and you may have your car, for example, repossessed your home foreclosed upon. Stay in touch with your attorney and paralegal; if you run into problems, they can often suggest a number of solutions that might help you. What we recommend will depend on your circumstances. In some instances you can immediately file a new case once your old 13 plan is dismissed and obtain an additional 36 to 60 months to pay on a new plan. Perhaps Chapter 7 might be an option to consider. Don’t panic–call your lawyer or paralegal for a conference to review all your options.
If I have been sued, am behind in my bills, have debts in a collection agency, have had my wages attached, have a judgment against me, a house foreclosure, or other legal problems, can I still file Chapter 13 and stop these actions?
Yes, Chapter 13 stops almost all types of court actions.