1. What is bankruptcy?
“Bankruptcy” refers to a federal code of laws and rules which are designed to help a debtor, whether an individual or a business, who is facing more debt than he, she, or it can afford to pay, achieve a fresh start. Bankruptcy permits the debtor to work out a plan to repay some or all of the debt, or to have some of the debt forgiven. The bankruptcy laws give the debtor protections and benefits that are not available outside of bankruptcy. Most notably, bankruptcy laws may provide for some debt forgiveness and typically require that creditors stop all collection efforts against the debtor while the debtor is working out a plan of repayment and/or awaiting a discharge of debts.
2. Will I lose my home or other assets?
Generally, the debtor can keep all of their personal property and primary residence. It is important to have an attorney review the equity in the debtor’s assets to determine whether it can be exempted within the bankruptcy process.
3. What is Chapter 7 bankruptcy?
Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases may be filed by an individual, a corporation or a partnership. Under Chapter 7, a trustee is appointed to collect and sell all property that is not fully encumbered by a lien and is not exempt and to use any proceeds to pay creditors. When the debtor is an individual, the debtor is allowed to claim certain property as exempt. The individual debtor usually receives a discharge, which means that he or she is relieved of the obligation to pay certain types of debts. Corporations and partnerships are not eligible to receive discharges.
4. What is Chapter 13 bankruptcy?
Chapter 13 is the debt repayment chapter for individuals who have regular income, whose secured debts do not exceed $1,149,525 and whose unsecured debts do not exceed $383,175 (these amounts are subject to change). Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future disposable income. The chapter 13 debtor proposes a repayment plan which must be approved by the Bankruptcy Court. The debtor pays the amounts set forth in the plan to the chapter 13 trustee, who distributes the funds to creditors in return for a small fee. The chapter 13 debtor receives a discharge of most debts after the debtor completes the payments required under the plan.
5. What is the automatic stay?
Filing a bankruptcy petition “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. There are several exceptions to this general stay, the most common being criminal proceedings, collection of certain alimony and child support obligations and governmental actions to protect the public. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments, without the approval of the bankruptcy court.
6. What is a discharge?
A bankruptcy discharge is a court order that relieves a debtor from personal liability for some specific types of debts. The discharge order permanently prohibits creditors from taking action to collect discharged debts from the debtor and, with very limited exceptions, against income and property that the debtor acquires after the bankruptcy filing. When a debt has been discharged, the creditor can no longer seek repayment. The discharge is the primary benefit most debtors obtain from bankruptcy. It is, however, important to understand that not all debts are dischargeable and creditors may still seek repayment for debts that are not discharged.
7. What debts can I discharge? What debts cannot be discharged?
Chapter 7 may eliminate most kinds of unsecured debts such as credit card, medical bills, unsecured personal loans, court judgments, and deficiencies on repossessed or foreclosed property. While most consumer debts are dischargeable in bankruptcy, the following debts are not: most federal or state income taxes (unless older than three years, along with other criteria); student loans and other educational debts; debts incurred by fraud, willful and malicious injury, fiduciary misconduct or embezzlement; criminal fines, restitution and traffic tickets; child support, spousal support and monies owed under a divorce decree; personal injury claims caused while driving under the influence of drugs or alcohol.
8. What is the creditors’ meeting? What can I expect to happen there?
The “meeting of creditors,” which is also referred to as a section 341 meeting, is held in every bankruptcy case. The debtor must attend the meeting and in many cases it is the only meeting or hearing that the debtor must attend. The first meeting of creditors usually occurs between thirty and forty-five days after the date that the bankruptcy petition is filed with the Bankruptcy Court. The meeting is conducted by the trustee who the United States Trustee has assigned to the case. No bankruptcy judge is present at the meeting. Creditors are invited to attend the meeting of creditors but more often than not, the creditors do not attend. If the debtor has an attorney, the attorney will be present at the meeting with the debtor. The meeting of creditors permits the trustee to review the debtor’s petition and schedules with the debtor face-to-face. The debtor is required to answer questions under penalty of perjury concerning the debtor’s assets, liabilities, financial condition, and any matter that may affect administration of the bankruptcy estate or the debtor’s right to a discharge. Section 341 meetings are typically short in duration.
9. How many years will a bankruptcy show on my credit report? Will I be able to obtain credit after filing for bankruptcy?
The fact that a debtor filed a Chapter 7 bankruptcy petition can remain on the debtor’s credit report for ten years. If the debtor successfully completes a chapter 13 plan, many credit reporting agencies will report that information for only seven years. There is no magic formula to obtaining credit after a bankruptcy but there is no restriction on seeking to do so. Often times, once a discharge has entered, a debtor will find it easier to obtain new credit as their debt to income ratio has improved. It is not uncommon to receive solicitations from credit grantors shortly after the discharge has entered.
**A debt relief agency helping people file bankruptcy under the Bankruptcy Code.