Personal Bankruptcy FAQ

1. What is the Bankruptcy Code designed to achieve?

Bankruptcy Code is designed to protect both Debtors and Creditors under the guiding principal that the honest but unfortunate Debtor should receive a "fresh start" while also protecting creditors' rights by providing them equal treatment amongst their respective creditor class. If you are honest and follow the requirements of the Bankruptcy Code, many of your debts can be discharged, meaning you are no longer responsible for repayment of those creditors. Your Creditors may receive a pro rata percentage of what they are owed depending on your ability to repay the debt and whether certain of your assets are exempt.

2. What is the meaning of the term 'exempt?'

The amount of equity in certain property that is not available to your Creditors for distribution.

3. Are there different types of bankruptcy cases?

There are four types of bankruptcy available to individuals or businesses:

  • Chapter 7
  • Chapter 13 (a three to five year reorganization plan for individuals in which you repay a portion of your debts);
  • Chapter 12 (only available to family farmers and fishermen); and
  • Chapter 11 (utilized by businesses and individuals engaged in business).

Most consumers file for Chapter 7 or Chapter 13 protections.

4. What is the difference between Chapter 7 and Chapter 13?

Chapter 7

Chapter 13

What assets may I retain?

Exempt property. Non-exempt property may be liquidated by a court appointed Trustee for the benefit of your creditors

Usually all of your property so long as your Creditors receive as much as they would had you filed for chapter 7 relief. These debts are usually paid out of future income or through voluntary liquidation of your nonexempt assets.

How long does the average case last?

Three to six months.

Three to five years.


How long will the bankruptcy filing remain on my credit report?

10 years.

7 years.

Are pensions or retirement account exempt?

Yes

Yes

Is a Trustee appointed and must I personally meet with the Trustee?

Yes, you must testify to the accuracy of your petition at a 341(a) meeting.

Yes, you must testify to the accuracy of your petition at a 341(a) meeting.

5. What kind of debts are dischargeable?

Most consumers' debts are dischargeable under Chapter 7 and Chapter 13. But certain debts like alimony and child support, most personal income taxes and student loans are not dischargeable. And all creditors have an opportunity to seek the court's order excepting a debt from discharge under certain circumstances. And a discharge under the Bankruptcy Code does not release a creditor's rights in any collateral you may have pledged to secure a loan (i.e., financed cars, home mortgages); the creditor may still seek to foreclose on or repossess the collateral after bankruptcy.

6. Will debts incurred after I file for bankruptcy relief be discharged?

No.

7. May I retain income and assets acquired after filing for bankruptcy relief?

Life insurance proceeds and inheritances to which you become entitled within 180 days after you file for bankruptcy may be recovered by the trustee in bankruptcy. But except to the extent that future income or assets are required to fund your Chapter 13 or Chapter 11 plan, a debtor may usually retain such property.

8. What if my wages have been garnished, bank accounts levied or other assets seized?

Upon the filing of your petition, an Automatic Stay is immediately invoked requiring most creditors to stop efforts to collect their debts, ceasing wage garnishments and stopping bank levies from proceeding. In some cases these garnished or levied assets may be returned to a Debtor by way of motion.

9. Do I have to 'qualify' for bankruptcy protection?

Generally, no, however there may be determining factors which dictate eligibility for certain chapters of bankruptcy.

10. How will I know if I am eligible for Chapter 7 or Chapter 13?

The Court utilizes is a complex formula that analyzes your income, size of your household and many other factors. Generally, if you are under the median income of your state you are eligible to file for Chapter 7 relief.

11. Are all Debtors eligible for Chapter 13 relief?

No. In order to file a Chapter 13 case you must have regular income. You also may not be eligible if your debts are too high.

Additionally if a majority of your debt is business debt you may also be
eligible to file for Chapter 7 relief.

12. Do all debts get discharged?

No, not all debts can be discharged. Non-dischargeable debts include:

  • debts for income and property taxes;
  • debts to creditors you did not list in your bankruptcy paperwork;
  • domestic support obligations such as alimony and child support debts;
  • fines payable to any governmental unit, such as a city or state;
  • restitution imposed on you as part of a criminal sentence;
  • student loans;
  • debts you may have incurred through fraud or by willful or malicious actions.

13. What documents do I need to file for bankruptcy protection?

Your attorney will explain this to you personally and you will be provided with a detailed questionnaire with certain disclosures.

    14. Must I produce tax returns before and after my bankruptcy?

    Yes. You must provide the Trustee with a copy of your tax return in the year prior to filing.

    15. Do I have to list all creditors on the bankruptcy Schedules?

    Yes.

    16. What if I forgot to list a creditor on my petition?

    You should notify your attorney immediately so your petition may be amended, otherwise this debt may not be discharged.

    17. What should I do if a creditor demands payment of a debt after I file my case?

    Contact your attorney. The Creditor may be subject to sanctions and attorneys' fees and costs.

    18. What is the difference between secured creditors and unsecured
    creditors?

    A "secured creditor," such as a car lender or a mortgage lender, is a creditor that has a lien on one of your assets. A lien permits the creditor to sell your property to satisfy your debt.

    An "unsecured creditor" is a creditor who has no lien and therefore no security interest in any of your particular property. Credit cards and medical bills are of examples unsecured creditors.

    19. Does a bankruptcy case automatically remove liens (such as mortgages) against my property?

    Not in most cases, however there are some instances where a Debtor may remove involuntary liens and a small category of voluntary liens.

    20. What must I do to prevent foreclosures and repossessions?

    See an attorney as soon as possible.

    21. What is a reaffirmation agreement and how does it work?

    A reaffirmation agreement is an agreement providing that you will pay a Creditor's debt even though the debt would otherwise be discharged in bankruptcy. Most reaffirmation agreements simply require you to pay the debt as originally agreed.

    People usually reaffirm a debt so that they can keep property that they gave as collateral for the debt. A valid reaffirmation agreement puts you under a legal obligation to repay the otherwise dischargeable debt and will survive the bankruptcy.

    22. As a result of filing for bankruptcy relief can my employer fire me?

    No, however the bankruptcy does not preclude your employer for firing you for poor performance or other valid reasons.