Frequently Asked Questions About Bankruptcy
Q: What is bankruptcy?
- A: Bankruptcy permits businesses or persons (debtors) who owe creditors more money than they can pay to either devise a plan to repay the money over time or completely eliminate (discharge) most of the bills.
Q: What are secured and unsecured debts?
- A: Secured debt is backed by some kind of property, through a voluntary agreement or involuntarily with court judgments or taxes. Creditors will usually make a claim to the property (and repossess it to satisfy the debt ) in a bankruptcy. Unsecured debt is not backed by any property, and the creditor cannot repossess it if you file for bankruptcy protection. Mortgages are a secured debt on you property.
Q: What kind of bankruptcy should I file?
- A: Most people will file under chapter 7 bankruptcy, where most debts are completely eliminated, or chapter 13 where a payment plan is made to creditors. Each type of bankruptcy details the following:
- Kinds of debts that can be completely eliminated
- The length of the payment plan
- Property that you get to keep
- Other information pertaining to the chapter of bankruptcy protection that you file.
The chapter you file under varies based on your situation and if you have sufficient assets to satisfy part or all of your debts. Bankruptcy laws are complicated, so deciding when and if a specific type of bankruptcy is applicable requires consultation with an experienced bankruptcy lawyer.
Q: Can I make a change in filing type after I file?
- A: In most cases, you can change chapters one-time to another chapter that you are eligible to file under. The requirement to change can be as simple as a one paragraph document. Be careful of any disadvantages to changing chapters, though. For example, if you change from a Chapter 13 to Chapter 7, some of your property may become a part of the estate (and may be repossessed and sold to satisfy your debts), despite the fact that they were protected from repossession under Chapter 13.
Q: Who is eligible to file bankruptcy?
- A: Just about any business or person who owes money to a creditor may file a petition for bankruptcy protection.
Q: How long do I have to wait to file bankruptcy again?
- A: A bankruptcy filing can negatively impact your ability to get credit, rent property and can even have a negative impact on future employment. A decision to file bankruptcy is a serious decision and should not be done without the consultation of an experienced bankruptcy attorney.
- Chapter 7 – May be filed every 8 years after a previous Chapter 7 case, and 6 years from a pervious Chapter 13 filing.
- Chapter 13 – May be filed after 4 years from a pervious Chapter 7 filing, or after 2 years from a previous Chapter 13 filing.
Q: What do I need to begin the bankruptcy process?
- A: Get a detailed accounting of all your past and current debts in addition to a list of assets (Property, cash, savings, etc.) and liabilities (Bills, debts, payments, etc.) You will additionally need a statement of financial condition to file with the court plus the filing fee.
Q: Do I need to have a minimum amount of debt to file?
- A: No. Although, certain situations might not justify filing for bankruptcy protection. If the financial issues are temporary, you might want to consider making a plan with your individual creditors for a modification in the payment terms or a settlement for less than the total amount owed. If you don’t have much property or cash, a bankruptcy filing might not be necessary, as the creditor will likely not be able to collect on the debt.
Q: What is a joint petition?
- A: A joint petition is when you and your spouse file one petition. Partners who are not married must each file their own case.
Q: What happens if I file, but my spouse does not?
- A: If one spouse files and the other does not, the one who doesn’t file may be responsible for the debts where the other is a cosigner. This should be discussed with a bankruptcy attorney to fully understand the ramifications.
Q: Does my divorce shield me from creditors if my ex files for bankruptcy?
- A: No. If you cosigned with your ex on a debt while married, a creditor can require the entire payment of that debt despite the divorce assigning the full debt to your ex. Your divorce could detail any recourse you may have against your ex if he or she should default on any loan obligation.
Q: Will a co-signer still owe a debt if I declare bankruptcy?
- A: Yes. Creditors can require the co-signer to honor the loan when the principal has filed bankruptcy on the loan. This is a critical point to consider before cosigning for anyone. You need to be ready, and able, to satisfy the debt in case the main signer defaults.
Q: Can any debt be discharged in bankruptcy?
- A: No. Debts that cannot be discharged vary between various chapters of bankruptcy. Normally, these debts can’t be discharged:
- Debts for taxes owed to local, state or federal agencies
- Debts for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained fraudulently
- Debts that weren’t in the initial list of debts or that the debtor waived being cancelled
- Debts owed to a spouse, former spouse, or child, for alimony, maintenance, or support of a spouse or child, with a separation agreement, divorce decree or other order of a court of record
- Debts owed for injury to another person or property owned by another unless the injury or damage was unintentional. (as in a court judgment)
- Debts for government-sponsored educational loans, unless it can be shown that repayment will cause an undue hardship
- Debts for death or personal injury caused by the debtor’s drunk driving or from driving while under the influence of drugs or other substances (as in a court judgment)
- Debts incurred after a bankruptcy was filed
- Some kinds of legal judgments. We can help you determine if this is the case or not.
Q: What can I keep, if anything, if I file bankruptcy?
- A: Exemptions allow an individual to “exempt”, or keep, certain kinds of property. State law defines what assets are considered “exempt,” but typically include:
- Vehicles up to a certain amount
- Equity in a home up to a certain amount
- “Tools of the trade” or tools and equipment necessary to allow the individual to continue working
Q: Do I have to file bankruptcy on all the accounts I owe, or can I keep some?
- A: You must include all the debts you owe in your petition and schedules. You may opt to keep some debts by “reaffirming” the specific debt.
Q: Will I lose my retirement accounts or payments from social security?
- A: Generally, no. Retirement accounts that are ERISA-qualified aren’t considered property of an estate and aren’t taken into consideration as assets. Social Security benefits are protected from assignment, or garnishment for debts in bankruptcy. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the “only” deposits into the account are direct deposits of Social Security benefits are identifiable and generally protected.
Q: Will I lose my home if I file for bankruptcy?
- A: There are many factors that impact the ability to keep your home, including:
- The state you’re in and the exemptions allowed
- The status of your loan (current or in foreclosure)
- The type of bankruptcy you’re filing (Chapter 13 provides more protection than Chapter 7 as long as payments are current)
Q: How long does a bankruptcy stay on my record?
- A: Bankruptcies remain on credit reports anywhere from 7 up to 10 years.
Q: Can I do anything to remove a bankruptcy from my credit report?
- A: No. Although at your option, you can file an explanation with the credit reporting agencies briefly describing the events resulting in your bankruptcy. If an account is reported inaccurately, you can request the record be updated to reflect the actual situation.
Q: When can I apply for credit again?
- A: The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor. There’s no law that prevents anyone from extending credit to you immediately after the filing of a bankruptcy, but creditors aren’t required to extend you credit.
Q: Can a “credit repair” company really save me from bankruptcy?
- A: Most consumers can be just as effective as a credit repair company in dealing with credit reporting agencies and improving their credit ratings, it simply takes time and patience. While there are non-profit companies in each state that offer credit guidance for a small fee, credit repair companies offer very little relative to the fees they charge.
Q: Can a creditor continue to contact me after I’ve filed for bankruptcy?
- A: During the time the debtor is working out a plan or the trustee is gathering and preparing the assets to sell, creditors are required by law to stop all collection efforts against you. As soon as the bankruptcy petition is stamped “Relief Ordered” upon filing, you’re immediately protected from your creditors. This is called an automatic stay. After that time, if a creditor attempts to collect a debt, immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case name number and filing date or a copy of the petition that shows it was filed. If the creditor still continues to collect, you may be entitled to take legal action against it.
Q: Who lets my creditors know I’ve filed for bankruptcy?
- A: The bankruptcy court notifies, by mail, all creditors advising them of:
- The filing of the bankruptcy
- The case number
- The automatic stay
- The name of the trustee assigned to the case (if filed under chapters 7 or 13)
- The date set for the meeting of creditors
- The deadline, if any, set for filing objections to the dismissal of debts
- Whether and where to file claims
The exact information in the notice may be slightly different depending on the chapter under which the case is filed.
Q: What does a trustee do?
- A: The trustee’s job is to:
- Administer the bankruptcy
- Make sure creditors get as much money as possible
- Run the first meeting of creditors (also called the “section 341 meeting”).
- Collect and sell non-exempt property (in a chapter 7 case) or collect and pay out money on a repayment plan (in a chapter 13 case)
- Obtain information from you and documents related to your bankruptcy
Trustees are appointed by the bankruptcy court, but aren’t necessarily lawyers. Their fees are covered by the bankruptcy filing fee or are a set percentage of the money distributed in the bankruptcy.
Q: Can creditors object to a bankruptcy filing or plan?
- A: Yes. Bankruptcy filings allow creditors to object to specific debts in the plan or the repayment or cancellation in its entirety.
- Chapter 7: Creditors generally have 60 days after the first creditors meeting to object to the discharge of a specific debt. If no objections are filed, the court issues the discharge order, the trustee collects and sells the assets and then distributes the proceeds to the creditors under a predetermined schedule. If there are objections, the bankruptcy proceedings, less the objected debt(s), continues. A trial may be necessary to resolve the objectionable issues.
- Chapter 13: Creditors can object to the plan for repayment and the court may take this into consideration. If no objections are filed by creditors or the trustee, the plan may be confirmed as filed.
Q: What happens at a 341 meeting of creditors?
- A: Once you declare bankruptcy you must attend the creditors’ meeting conducted by the trustee appointed to their case. You must answer questions concerning:
- How the situation evolved
- Any actions taken with the property
- Debts listed in the petition or any other financial information requested by the trustee
Failure answer truthfully can result in the petition being dismissed or, in extreme cases, a charge of perjury. Creditors may attend and question you about the assets or any other matter relevant to the bankruptcy. A creditor doesn’t waive any rights by not attending the creditors’ meeting.
Q: Can I add a debt on my schedule if it was initially forgotten?
- A: After filing the petition, if you discover that an entry is inaccurate or missing, you may typically file an amendment to correct it. Remember, you’re submitting the petition under the penalty of perjury, so take care with the initial filing. Also, any debt that isn’t on the list can’t be discharged and you’ll be responsible for it.
Q: When should I stop using my credit cards if I’m planning on filing for bankruptcy?
- A: As soon as you anticipate filing bankruptcy, stop using your credit cards. Bankruptcy law allows the review of questionable purchases for potential fraud. If purchases are made 40 days prior to filing or cash advances taken within 20 days of filing, the debt may possibly be excluded from the bankruptcy and it can be dismissed.
Q: What’s a reaffirmation agreement?
- A: Reaffirming a debt is voluntary and isn’t required by bankruptcy codes. You may voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be other reasons for wanting to reaffirm a specific debt, such as a vehicle loan or student loan.
Q: Can a bankruptcy be reopened?
- A: Yes. Typically, a bankruptcy case is reopened by the trustee when questions arise concerning what was included or possibly omitted, or any other irregularities that surface.
Q: What about an inheritance?
- A: How an inheritance is treated in bankruptcy depends on when you become entitled to receive it and what type of bankruptcy relief you’re seeking.
Chapter 7 – if you become entitled to an inheritance within 180 days of your filing date, the inheritance will be a part of your bankruptcy estate, and can be used to pay your debts. The important date is when your right to the inheritance is fixed, which is typically on the date of a person’s death. You might not receive property or money from someone’s estate for many months.
Chapter 13 – your inheritance can be used in determining how much you have available to pay creditors under your repayment plan, and the 180-day limit doesn’t apply.
In either type of bankruptcy, you must inform the bankruptcy trustee about the inheritance. If you’re thinking about filing for bankruptcy, ask a bankruptcy lawyer how an expected inheritance might factor into your plans.
For criminal defense representation contact Coeur d’alene attorney John Redal.