FREQUENTLY ASKED QUESTIONS
REGARDING BANKRUTPCY
The following is a collection of common questions people have relating to the bankruptcy process. This information is provided for general informational purposes only and should not be construed as formal legal advice nor the formation of a lawyer-client relationship.
If you have further questions, please call us today to schedule your free bankruptcy consultation.
Q: What does it mean to file for bankruptcy?
A:
Bankruptcy is a legal process that allows people to be freed from burdensome debt while providing an orderly process to repay creditors from the available portion of the debtor’s property. The goal of bankruptcy is to give honest but unfortunate individuals a “fresh start” by relieving them of most of their debts.
A person “files for bankruptcy” when he files with the bankruptcy court a petition for relief under one of the available chapters (typically Chapter 7 or Chapter 13 for individual consumers) of the Bankruptcy Code.
Q: What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
A:
Chapter 7 Bankruptcy:
In a Chapter 7 bankruptcy, the debtor turns over to the court-appointed bankruptcy trustee all non-exempt property to be sold at auction. If the debtor owns property that serves as collateral for a debt, the debtor must either surrender the property or retain it by paying off the debt or continuing payments.
Once the process is complete, the court grants the debtor a discharge of most debts, which means creditors are permanently prohibited from collecting those debts.
Chapter 13 Bankruptcy:
In a Chapter 13 bankruptcy, the debtor proposes a repayment plan lasting three to five years. The debtor pays most or all disposable income to a trustee for distribution to creditors. As long as payments are made under the plan, the debtor can keep property and receives a discharge of remaining eligible debts at the end of the plan.
Q: How does a person decide whether to file under Chapter 7 or Chapter 13?
A:
Most consumer debtors choose Chapter 7 because they have few non-exempt assets and want a clean break from debt. Chapter 13 is usually chosen when:
- The debtor’s income is too high to qualify for Chapter 7, or
- The debtor has significant non-exempt assets they wish to keep.
Choosing the correct chapter requires a detailed analysis of income, debts, and assets and should be done after consulting a knowledgeable bankruptcy attorney.
Q: Can someone keep their house, car, or other property in Chapter 7?
A:
While Chapter 7 generally requires surrender of non-exempt assets, many debtors can keep significant property through exemptions or by reaffirming secured debts.
Federal and state laws allow debtors to retain exempt property such as:
- A vehicle
- Some equity in a home
- Furniture and household goods
- Clothing and personal items
- Certain jewelry
- Retirement accounts
Exemptions are subject to limits, and proper planning can help maximize what a debtor is able to keep.
Q: Is there any way to keep non-exempt property?
A:
Yes. Non-exempt property is usually sold by the trustee at auction, but debtors (or family and friends) may bid on the property. Trustees are also often willing to negotiate a buyback price, which may be discounted to reflect avoided auction costs.
Q: How can bankruptcy stop creditor harassment?
A:
Filing bankruptcy triggers an automatic stay, which immediately prohibits creditors and collection agencies from pursuing collection actions. This includes phone calls, lawsuits, wage garnishments, and foreclosures.
Creditors who violate the automatic stay risk being held in contempt of court.
Q: Are all debts discharged in bankruptcy?
A:
No. Common non-dischargeable debts include:
- Certain tax debts
- Debts incurred through fraud or false pretenses
- Child support and spousal support
- Student loans (with limited exceptions)
- DUI-related judgments
- Certain luxury purchases or cash advances shortly before filing
- Government fines and penalties
- HOA fees that accrue after filing
In some cases, a court may deny a discharge entirely due to fraud, inadequate records, or a recent prior bankruptcy.
Q: How long does a bankruptcy case take?
A:
Chapter 7:
Typically lasts about four months for cases with no non-exempt assets. Debtors must attend a meeting of creditors but usually do not appear in court.
Chapter 13:
Lasts three to five years, depending on the repayment plan approved by the court.
Q: How does bankruptcy affect credit?
A:
Bankruptcy significantly lowers a credit score and remains on a credit report for up to 10 years. However, many filers already have damaged credit prior to filing. With responsible financial behavior, many debtors rebuild credit sooner than expected.
Q: How much does it cost to file for bankruptcy?
A:
- Chapter 7 filing fee: $299.00
- Chapter 13 filing fee: $274.00
These fees do not include attorney fees, which vary by case and complexity.
Q: Do I need an attorney to file bankruptcy?
A:
While individuals may file on their own, bankruptcy law is complex. Courts and trustees cannot provide legal advice. Errors can result in loss of property, denial of discharge, or dismissal of the case. An experienced bankruptcy attorney helps ensure proper filing, protection of assets, and eligibility for discharge.
Q: Have bankruptcy laws made filing harder?
A:
Yes. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act, which introduced the means test. High-income individuals who fail the means test are generally required to file under Chapter 13 instead of Chapter 7.
Q: Are HOA fees dischargeable?
A:
HOA fees incurred before filing are dischargeable. Fees that accrue after filing are not dischargeable as long as the debtor retains ownership or possession of the property.
Q: How quickly must I leave my home if I surrender it?
A:
In Chapter 7, a debtor surrendering a home must vacate no later than 30 days after the first scheduled meeting of creditors. This typically allows the debtor to remain in the home for one to two months after filing.
Q: What financial and criminal consequences can result from debts?
A: Failure to pay debts, fraud, or concealment of assets can be classified as criminal offenses in certain jurisdictions.
Q: Can debt lead to extradition?
A: Yes. For example, fraud involving creditors or taxes can result in criminal prosecution and even the threat of extradition if the debtor is located abroad.