FAQ'S

Basic Questions About Bankruptcy

Covered in this Article:

  • What is a chapter 7 bankruptcy?
  • What happens after a person files for bankruptcy?
  • What are the most common reasons for a chapter 7 bankruptcy?
  • Is it moral to file for bankruptcy?
  • What can a bankruptcy do for me?
  • What can’t a bankruptcy do?
  • What are the different types of bankruptcy cases that I should consider?
  • What is a chapter 7 (Straight Bankruptcy)?
  • What is chapter 13 bankruptcy? (Reorganization)
  • What does it cost to file for bankruptcy?
  • Where is a chapter 7 case filed?
  • How long does the chapter 7 process last?
  • What are the benefits of filing for bankruptcy?
  • What are the limitations of filing for bankruptcy?
  • Is a chapter 7 (straight bankruptcy) bankruptcy the right choice for a debtor?
  • Is a chapter 13 bankruptcy (Reorganization) the right choice for the debtor?
  • Who pays for a person’s debts when they file for bankruptcy?
  • Are the names of persons who have fild under chapter 7 published?
  • What else should I know about filing for bankruptcy?

1. What is a chapter 7 bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

Chapter 7 is a way to legally discharge or cancel your indebtedness. Chapter 7 gives a person a fresh start on your economic life within certain limitations. A person can only file a chapter 7 once every 8 years. Moreover, certain types of debts are not dischargeable.

Chapter 7 is not for everyone. For example, it is not for people who run up their credit cards with the intent of shortly thereafter going into bankruptcy. Bankruptcy is not for people who deliberately charges much more than they could ever pay just to discharge those debts. Bankruptcy is not for anyone who basically acts in a dishonest or fraudulent manner. Bankruptcy is not for a parent who is trying to get their child support and alimony discharged and wiped out. Bankruptcy is designed as relief for the honest debtors, who find themselves overwhelmed in debt. The debtor is not required to prove that he ruined his life and made terrible mistakes by getting themselves in massive debt. The debtor is not required to prove that he made errors in their judgment and got themselves into financial straits.

A chapter 7 bankruptcy is also not for someone who is trying to save their home from a mortgage foreclosure. Generally, if a person is about to lose your home for any reason, a chapter 13 should be filed. Furthermore, a chapter 7 is not for someone who has the ability to make some reasonable payment on a month basis to unsecured creditors. For instance, if a person’s budget would allow them to pay ten cents on a dollar to creditors, they the debtor should generally file a chapter 13 instead.

2. What happens after a person files for bankruptcy?

After a person’s bankruptcy case is filed they will be asked to attend a “meeting of the creditors.” This “meeting” is actually not much of a meeting at all. Generally, no one attends, with a few exceptions. The lawyer will attend, the debtor must attend, and the US Bankruptcy Trustee will be there. The trustee is an attorney who is appointed to ask you questions about your case, which you will be required to answer under oath. The trustee then reports to the bankruptcy judge as to whether he recommends a discharge. All this may sound scary, but it is actually a brief and routine procedure.

Most people are amazed at how easy the bankruptcy procedure is. Your creditors have the legal right to attending the meeting of the creditors but they rarely do. Once the meeting of the creditors is over then the trustee will make his report to the court. Therefore, he will usually recommend that the debtor receive his discharge. If there is a problem with the case, then it is the lawyers job to fix the case. Most of the time, a competent bankruptcy lawyer can address any problems that the trustee raises at the meeting of the creditors.

After the trustee makes his recommendation, the court will enter a “discharge” within three months. The reason you will not be granted a discharge immediately, is that the creditors are given some time to object to your discharge, or advisel the court why their particular debt should not be discharged. Again, few do take advantage of this opportunity.

At the meeting of the creditors, the trustee will scrutinize the debtors budget and expenses. If the debtor has more than $500 to $1,000 of disposable income after paying all of their expenses, then some trustees will request that the debtor explain some of their debts. Moreover, the trustee in rare cases will recommend that the debtor not be given a trustee if he believes that the debtor has too much disposable income. Only some trustees follow this doctrine. Some trustees are more reasonable and just make sure that the petition is accurate. However, there many trustees are creating a trend to scrutinize a debtor’s disposable income, and to analyze their expenditures on personal care items, and non-essential expenses. For instance, if a debtor lists a luxury car in his petition then some trustees may make this a major issue. An experienced bankruptcy lawyer should alert any potential client of these potential issues before filing.

3. What are the most common reasons for a Chapter 7 bankruptcy?

The most common reasons for filing for bankruptcy are:

* Unemployment

* Large medical expenses

* Seriously overextended credit

* Divorce

4. Is it moral to file for bankruptcy?

The bible teaches us to “Forgive us our debts, as we forgive our debtors.” (Matthew, 6:12). If Providian, Chase, Citibank, HSBC, Capital One, American Express and all those other credit card companies and collection agencies would be a little more forgiving then we would not need the bankruptcy laws The bottom line is that our country needs the bankruptcy laws. These bankruptcy laws are the first and most important line of consumer defense. Moreover, it is your constitutional right to file for bankruptcy.

5. What can a bankruptcy do for me?

Bankruptcy may make it possible for you to: Eliminate the legal obligation to pay most or all of your debts.  This is called a “discharge” of debts.  It is designed to give you a fresh financial start.

Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments.  (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)

* Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
* Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
* Restore or prevent termination of utility service.
* Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

6. What can’t a bankruptcy do for me?

Bankruptcy cannot, however, cure every financial problem.  Nor is it the right step for every individual. In bankruptcy you can’t:

* Eliminate certain rights of “secured” creditors.  A “secured” creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.

* Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.

* Protect co-signers on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the co-signer may still have to repay all or part of the loan.

* Discharge debts that arise after bankruptcy has been filed.

7. What are the different types of bankruptcy cases that I should consider?

There are two major types of bankruptcy cases for the consumer;

* Chapter 7 is known as “straight” bankruptcy or “liquidation.”  It requires a debtor to give up property which exceeds certain limits called “exemptions,” so the property can be sold to pay creditors.

* Chapter 13 is called “debt adjustment.”  This process requires a debtor to file a plan to pay debts or parts of debts from his current income.

* Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.

8. What is a Chapter 7 (Straight Bankruptcy)?

In a bankruptcy case filed  under chapter 7, you must file a petition that requests the court to discharge your debts.  The basic idea in a chapter 7 bankruptcy is to wipe out or discharge your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases all of your property will be considered to be exempt. However, any of your property that is not considered to be exempt is sold by the trustee. Any monies that are raised by the sale will then be distributed to creditors on a pro rata basis.

If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, then a chapter 7 case probably will not be the right choice for you.  That is because a chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

9. What is chapter 13 bankruptcy? (Reorganization)

In a chapter 13 case you must file a “plan” that delineates how you will pay off some of your past-due and current debts over three to five years. The most important aspect about a chapter 13 case is that it will allow you to keep valuable property such as your car or home. However, in a chapter 13 case you can must your current mortgage and car payments.

You should consider filing a chapter 13 plan if you;

* Own your home and are in danger of losing it because of money problems;

* Are behind on debt payments, but can catch up if given some time;

* Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

You will need to have enough income in chapter 13 to pay for your necessities, and to keep up with the required payments as they come due.

10. What does it cost to file for bankruptcy?

It now costs $300 to file for bankruptcy under chapter 7,  and $275 to file for bankruptcy under chapter 13. The court may allow you to pay this filing fee in installments if you cannot pay all at once. If you hire an attorney you will also have to pay the attorney’s fees you agree to.

11. Where is a chapter 7 case filed?

In the office of the Clerk of the Bankruptcy Court in the district where you have lived or maintained your principal place of business for the greatest portion of the last 180 days. The bankruptcy court is a federal court and is a unit of the United States District Court.

12. How long does the chapter 7 process last?

A chapter 7 case begins with the filing of the case, and it ends when the court closes the case. If the debtor has no non-exempt money or property for the trustee to collect, then the case will most likely be closed shortly once the debtor receives his discharge. A debtor typically receives his discharge about four or five months after the case is filed. If the debtor has non-exempt money or property for the trustee to collect, then the length of the case will depend on how long it takes the trustee to collect the assets, and perform his other duties in the case. Most consumer cases with assets last about six months, but some may continue for a  considerable period of time.

13. What are the  benefits of filing for bankruptcy?

Bankruptcy may make it possible for a person to:

* Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.

* Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.

* Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.

* Stop a wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.

* Restore or prevent termination of utility service. Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

14. What are the limitations of filing for bankruptcy?

Bankruptcy does have some limitations and it is not a cure all for all of your financial problems. The limitations of bankruptcy are as follows:

* Bankruptcy can eliminate certain rights of “secured” creditors. A “secured” creditor has taken a mortgage or other lien on property as collateral for the loan. Some common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.

* Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, some student loans, court restitution orders, criminal fines, and some taxes.

* Protect co-signers on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.

*Discharge debts that arise after bankruptcy has been filed.

15. Is a chapter 7 (Straight Bankruptcy) right for the debtor?

In a bankruptcy case under Chapter 7, the debtor files a petition that requests the court to discharge his debts. The basic idea in a chapter 7 bankruptcy is to wipe out or to discharge your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be considered to be exempt. However, any property that is not considered to be exempt is eventually sold. If there is any monies raised after the sale, then these proceeds are then distributed to any creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, then a chapter 7 case probably will not be the right choice for you. The reasons for this is  because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt

16. Is a chapter 13 bankruptcy (Reorganization) the right choice for the debtor?

In a chapter 13 case you are required file a “plan”that delineates how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property–especially your home and car–which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.

You should consider filing a chapter 13 plan if you:

* Own your home and are in danger of losing it because of money problems;
* Are behind on debt payments, but can catch up if given some time;
* Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

A debtor will need to have enough income in chapter 13 to pay for their necessities and to keep up with the required payments as they come due.

17. Who pays for a person’s debts when they file for bankruptcy?

When a person files for chapter 7 no one pays the debts. When someone files a chapter 7 unfortunately the creditors suffer a financial loss. Most of the debts that are discharged in a Chapter 7 are credit card debts. Credit card companies are some of the most profitable companies in the world and they earn billions and billions each year. The credit card companies can afford to lose a “few pennies” by having your credit card debt wiped out.

18. What else should I know about filing for bankruptcy?

Utility services – Public utilities, such as the electric company, can’t refuse or cut off service because you have filed for bankruptcy.  However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.

Discrimination – An employer or government agency cannot discriminate against you because you have filed for bankruptcy.

Driver’s license – If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.

Co-signers – If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt. If you file a chapter 13, you may be able to protect co-signers, depending upon the terms of your chapter 13 plan.

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