Bankruptcy may allow individuals and
businesses experiencing financial
hardships to get a fresh start. In
appropriate circumstances, a
bankruptcy will allow the debtor to
eliminate or reorganize debt while
saving important assets such as a
home or car. The filing of a
bankruptcy will also force creditors
and collection agencies to stop
calling, and, in most cases, will
permanently stop lawsuits and wage
garnishments.
DISCLAIMER:
This information deals with Chapter
7 consumer bankruptcy. Each state
has its own bankruptcy laws, so you
need to check with your state for
details. Information dealing with
Chapter 13 bankruptcy and consumer
debt restructuring is not discussed
in the following FAQs. The
information contained in the
following FAQs is provided for
general information purposes only
and is not intended to be a legal
opinion nor legal advice nor is it
intended to be a complete discussion
of all the issues related to the
area of Chapter 7 consumer
bankruptcy. Every individual's
factual situation is different and
you should seek independent legal
advice regarding specific
information.
Chapter 7 bankruptcy is a
liquidation proceeding. The debtor
turns over all non-exempt property
to the bankruptcy trustee who then
converts it to cash for distribution
to the creditors. The debtor
receives a discharge of all
dischargeable debts.
2. What happens when I file
a chapter 7 bankruptcy?
Under the federal bankruptcy
statute, a discharge is a release of
the debtor from personal liability
for certain specified types of
debts. In other words, the debtor is
no longer required by law to pay any
debts that are discharged. The
discharge operates as a permanent
order directed to the creditors of
the debtor that they refrain from
taking any form of collection action
on discharged debts, including legal
action and communications with the
debtor, such as telephone calls,
letters, and personal contacts.
Although a debtor is relieved of
personal liability for all debts
that are discharged, a valid lien
(i.e., a charge upon specific
property to secure payment of a
debt) that has not been avoided
(i.e., made unenforceable) in the
bankruptcy case will remain after
the bankruptcy case. Therefore, a
secured creditor may enforce the
lien to recover the property secured
by the lien.
Generally people file chapter 7
bankruptcy if they have a large
amount of unsecured debt such as
credit card debt or medical expenses
that they are no longer able to pay.
Often unemployment, unexpected
medical expenses, or divorce prompt
the cause the debtor to seek
protection from creditors by filing
chapter 7 bankruptcy.
In a chapter 13 case you file a plan
showing how you will pay off some of
your past-due and current debts over
a period of three to five years. The
most important thing about a chapter
13 case is that it will allow you to
keep valuable property, like your
home or car, even if you are behind
on payments or you have equity not
covered by your exemptions. Your
payments on these secured debts will
generally be your regular monthly
payments plus some extra amount if
you need to get caught up because
you are behind when you file.
Generally, people file chapter 13 if
they have valuable property not
covered by an exemption, like a home
or car, but want to keep this
property. If a debtor is behind on
secured loan payments a chapter 13
bankruptcy can allow the debtor to
make up these payments over time
while keeping the home or car.
You can file for Chapter 7
bankruptcy again after six years has
passed from the date of your last
filing. A Chapter 13 bankruptcy can
be filed at any time.
It costs about $300 to file a
Chapter 7 bankruptcy. A bankruptcy
lawyer's fees vary but should be in
the range of $1,000 to $2,000.
Schedule a free consultation for
more information.
8. What property can I keep
after I file bankruptcy?
In a chapter 7 case, you can
keep all the property which is
exempt from the claims of creditors.
In determining whether property is
exempt, you must keep a few things
in mind. The value of property is
not the amount you paid for it, but
what it is worth now. Generally the
trustee is interested in the resale
value of your property so for most
personal effects this is the garage
sale value of your property.
You also only need to look at your
equity in property. This means that
you count your exemptions against
the full value minus any money that
you owe on mortgages or liens. For
example, if you own a $50,000 house
with a $40,000 mortgage, you count
your exemptions against the $10,000
equity you have in the home. While
your exemptions allow you to keep
property even in a chapter 7 case,
your exemptions do not make any
difference to the right of a
mortgage holder or car loan creditor
to take the property to cover the
debt if you are behind. If you are
behind in payments and can afford to
make the loan payment and to make
the amount you are behind over a
period of three to five years you
should consider a chapter 13
bankruptcy.
In a chapter 13
case, you can keep all of your
property if your plan meets the
requirements of the bankruptcy law.
In most cases you will have to pay
the mortgages or liens as you would
if you didn't file bankruptcy.
9. Can I keep my home and/or
car after I file bankruptcy?
You will not lose your home or car
during your bankruptcy case as long
as your equity in the property is
fully exempt. Even if your property
is not fully exempt you may still be
able to keep your property by filing
a chapter 13 bankruptcy instead of a
chapter 7 bankruptcy. In a chapter
13 plan you will be required to pay
at least the equivalent of the
non-exempt equity you have in your
home or car and any amount you are
behind on your home or car loan over
the course of the three to five
plan. You also will be required to
continue making the regular monthly
payments.
- money owed for child support
or alimony, fines, and some taxes;
- debts not listed on your
bankruptcy petition; - loans you
got by knowingly giving false
information to a creditor, who
reasonably relied on
it in making you the loan; -
debts resulting from "willful and
malicious" harm; - student loans
owed to a school or government body,
except if:-- the court decides
that payment would be an undue
hardship; - mortgages and other
liens which are not paid in the
bankruptcy case (but bankruptcy
will wipe out your obligation to pay
any additional money if the property
is sold by the creditor).
In most bankruptcy cases, you only
have to go to a proceeding called
the "meeting of creditors" or a "341
meeting" to meet with the bankruptcy
trustee and any creditor who chooses
to come. This meeting will take
place about 30 or 40 days after the
bankruptcy filing. The trustee is
not a judge but an individual
appointed by the United States
Trustee to oversee your case. Most
of the time, this meeting will be a
short and simple procedure where you
are asked a few questions about your
bankruptcy forms and your financial
situation. Occasionally, if a
creditor or the trustee files a
motion or an adversary action or if
you choose to dispute a debt, you
may have to appear before a judge at
a hearing. If you need to go to
court, you will receive notice of
the court date and time from the
court and/or from your attorney.
There is no clear answer to
this question. Unfortunately, if you
are behind on your bills, your
credit may already be bad.
Bankruptcy will probably not make
things any worse. The fact that you
filed bankruptcy, if properly
explained, may be less damaging than
a history of unpaid accounts.
The fact that you have filed a
bankruptcy will appear on your
credit record for ten years. But
since bankruptcy wipes out your old
debts, you are likely to be in a
better position to pay your current
bills, and you may be able to get
new credit. The best way to restore
your credit is to obtain new credit
and make the payments on the new
debt on time.
13. Can I get a credit card
after filing bankruptcy?
Yes, there are several options
available. While technically not a
credit card you could use a bank or
debit card to perform activities for
which you normally would use a
credit card. You also may be able to
keep the credit card you already
have if the creditor grants
approval. If these options do not
work you can get secured credit card
which is backed by your own bank
account.
Public utilities, such as the
electric company, cannot 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 your
bankruptcy petition is filed.
15. Can I be discriminated
against for filing bankruptcy?
Under the federal bankruptcy
statute, a discharge is a release of
the law provides express
prohibitions against discriminatory
treatment of debtors by both
governmental units and private
employers. A governmental unit or
private employer may not
discriminate against a person solely
because the person was a debtor, was
insolvent before or during the case,
or has not paid a debt that was
discharged in the case. The law
prohibits the following forms of
governmental discrimination:
terminating an employee;
discriminating with respect to
hiring; or denying, revoking,
suspending, or declining to renew a
license, franchise, or similar
privilege. A private employer may
not discriminate with respect to
employment if the discrimination is
based solely upon the bankruptcy
filing.
16. What is the effect of
bankruptcy on co-signers?
If someone has co-signed a loan with
you and you file for bankruptcy, the
co-signer will still have to pay the
debt. You should list the co-signer
as a creditor in your bankruptcy
petition since they may have a
contingent claim against you.
17. Can a married debt file
without the other spouse?
Yes, but your spouse will still be
liable for any joint debts. If you
file together you will be able to
double your exemptions. In some
cases where only one spouse has
debts, or one spouse has debts that
are not dischargeable then it might
be advisable to have only one spouse
file. If the spouses have joint
debts, the fact that one spouse
discharged the debt may show on the
other spouses credit report.
19. How long after filing
bankruptcy will the creditors stop
calling?
Once a creditor or bill collector
becomes aware of a filing for
bankruptcy protection, it must
immediately stop all collection
efforts. After you file the
bankruptcy petition, the court mails
a notice to all the creditors listed
in your bankruptcy schedules. This
usually takes a couple of weeks.
Creditors will also stop calling if
you inform them that you filed the
bankruptcy petition, and supply them
with your case number. In some
cases, you or your attorney should
contact the creditor immediately
upon filing the bankruptcy petition,
especially if a law suit is pending.
If a creditor continues to use
collection tactics once informed of
the bankruptcy they may be liable
for court sanctions and attorney
fees for this conduct.
20. Can I erase my student
loans by filing bankruptcy?
Generally, student loans are
not discharged in bankruptcy. In 11
U.S.C. sec. 523(a)(8) there are two
exceptions to this general rule:
1. The student loan may be
discharged if it is neither "insured
or guaranteed by a governmental
unit" nor "made under any program
funded in whole or in part by a
governmental unit or nonprofit
institution."
2. The student
loan may be discharged if paying the
loan will "impose an undue hardship
on the debtor and the debtor's
dependents."
It is usually
difficult to have student loans
erased under the undue hardship
standard. Whether an exception
applies under this law depends on
the facts of the particular case and
may also depend on local court
decisions. Even if a student loan
falls into one of the two
exceptions, discharge of the loan
may not be automatic. You may have
to file an adversary proceeding in
the bankruptcy court to obtain a
court order declaring the debt
discharged.
Under the federal bankruptcy
statute, a discharge is a release of
the debtor from personal liability
for certain specified types of
debts. In other words, the debtor is
no longer required by law to pay any
debts that are discharged. The
discharge operates as a permanent
order directed to the creditors of
the debtor that they refrain from
taking any form of collection action
on discharged debts, including legal
action and communications with the
debtor, such as telephone calls,
letters, and personal contacts.
Although a debtor is relieved of
personal liability for all debts
that are discharged, a valid lien
(i.e., a charge upon specific
property to secure payment of a
debt) that has not been avoided
(i.e., made unenforceable) in the
bankruptcy case will remain after
the bankruptcy case. Therefore, a
secured creditor may enforce the
lien to recover the property secured
by the lien.
The timing of the discharge varies,
depending on the chapter under which
the case is filed. In a chapter 7
(liquidation) case, for example, the
court usually grants the discharge
promptly on expiration of the time
fixed for filing a complaint
objecting to discharge and the time
fixed for filing a motion to dismiss
the case for substantial abuse (60
days following the first date set
for the 341 meeting). Typically,
this occurs about four months after
the date the debtor files the
petition with the clerk of the
bankruptcy court. In chapter 11
(reorganization) cases, the
discharge occurs upon confirmation
of a chapter 11 plan. In cases under
chapter 12 (adjustment of debts of a
family farmer) and 13 (adjustment of
debts of an individual with regular
income), the court grants the
discharge as soon as practicable
after the debtor completes all
payments under the plan. Since a
chapter 12 or chapter 13 plan may
provide for payments to be made over
three to five years, the discharge
typically occurs about four years
after the date of filing.
Unless there is litigation involving
objections to the discharge, the
debtor will automatically receive a
discharge. The Federal Rules of
Bankruptcy Procedure provide for the
clerk of the bankruptcy court to
mail a copy of the order of
discharge to all creditors, the
United States trustee, the trustee
in the case, and the trustee’s
attorney, if any. The debtor and the
debtor’s attorney also receive
copies of the discharge order. The
notice, which is simply a copy of
the final order of discharge, is not
specific as to those debts
determined by the court to be
non-dischargeable, i.e., not covered
by the discharge. The notice informs
creditors generally that the debts
owed to them have been discharged
and that they should not attempt any
further collection. They are
cautioned in the notice that
continuing collection efforts could
subject them to punishment for
contempt. Any inadvertent failure on
the part of the clerk to send the
debtor or any creditor a copy of the
discharge order promptly within the
time required by the rules does not
affect the validity of the order
granting the discharge.
24. Does the debtor have a
right to a discharge or can
creditors object to the discharge?
In chapter 7 cases, the debtor
does not have an absolute right to a
discharge. An objection to the
debtor’s discharge may be filed by a
creditor, by the trustee in the
case, or by the United States
trustee. Creditors receive a notice
shortly after the case is filed that
sets forth much important
information, including the deadline
for objecting to the discharge. A
creditor who desires to object to
the debtor’s discharge must do so by
filing a complaint in the bankruptcy
court before the deadline set out in
the notice. Filing of a complaint
starts a lawsuit referred to in
bankruptcy as an “ adversary
proceeding.” A chapter 7 discharge
may be denied for any of the reasons
described in section 727(a) of the
Bankruptcy Code, including the
transfer or concealment of property
with intent to hinder, delay, or
defraud creditors; destruction or
concealment of books or records;
perjury and other fraudulent acts;
failure to account for the loss of
assets; violation of a court order;
or an earlier discharge in a chapter
7 or 11 case commenced within six
years before the date the petition
was filed. If the issue of the
debtor’s right to a discharge goes
to trial, the objecting party has
the burden of proving all the facts
essential to the objection.
In chapter 12 and chapter 13 cases,
the debtor is entitled to a
discharge upon completion of all
payments under the plan. The
Bankruptcy Code does not provide
grounds for objecting to the
discharge of a chapter 12 or chapter
13 debtor. Creditors can object to
confirmation of the repayment plan,
but cannot object to the discharge
if the debtor has completed making
plan payments.
25. Can the debtor receive a
second discharge in a later chapter
7 case?
You will be denied a discharge in
subsequent chapter 7 case if the you
received a discharge under chapter 7
or chapter 11 in a case filed within
eight years before the subsequent
petition is filed. You will also be
denied a chapter 7 discharge if you
previously received a discharge in a
chapter 12 or chapter 13 case filed
within six years before the date of
the filing of the second case unless
(1) you paid all “allowed unsecured”
claims in the earlier case in full,
or (2) you made payments under the
plan in the earlier case totaling at
least 70 percent of the allowed
unsecured claims and your plan was
proposed in good faith and the
payments represented your best
effort. You are ineligible for
discharge under chapter 13 if you
received a prior discharge in a
chapter 7, 11, or 12 case filed four
years before the current case or in
a chapter 13 case filed two years
before the current case.
A discharge can be revoked under
certain circumstances. For instance,
a trustee, creditor, or the United
States trustee may request that the
court revoke the debtor’s discharge
in a chapter 7 case based on
allegations that the debtor obtained
the discharge fraudulently; the
debtor failed to disclose the fact
that he or she acquired or became
entitled to acquire property that
would constitute property of the
bankruptcy estate; or the debtor
committed one of several acts of
impropriety described in section
727(a)(6) of the Bankruptcy Code.
Typically, a request to revoke the
debtor’s discharge must be filed
within one year after the granting
of the discharge or, in some cases,
before the date that the case is
closed. It is up to the court to
determine whether such allegations
are true and, if so, to revoke the
discharge. In a chapter 13 case, if
confirmation of a plan or the
discharge is obtained through fraud,
the court can revoke the order of
confirmation or discharge.
27. May the debtor pay a
discharged debt after the bankruptcy
case has been concluded?
A debtor who has received a
discharge may voluntarily repay any
discharged debt. A debtor may repay
a discharged debt even though it can
no longer be legally enforced.
Sometimes a debtor agrees to repay a
debt because it is owed to a family
member or because it represents an
obligation to an individual for whom
the debtor’s reputation is
important, such as a family doctor.
Yes. However, a home is an asset
usually secured by a deed of trust.
The lender is entitled to apply to
the court for relief from the
automatic stay, the order preventing
creditor action by virtue of the
bankruptcy. Depending upon several
factors, you may be able to prolong
a foreclosure until you have
received your discharge from
bankruptcy. You usually have to make
a deal with the lender in order to
keep a home that is in foreclosure.
30. Will bankruptcy stop
an eviction, "unlawful detainer,"
action?
Perhaps. However, this will only
delay the inevitable. The owner is
entitled to possession of his
property and at best you will be
able to remain in the property until
you have received your discharge
from bankruptcy or the landlord
obtains an order from the bankruptcy
court. I must caution you that if
the only reason you filed the
bankruptcy is to stop an eviction,
this may be considered an abuse of
Chapter 7. If the bankruptcy court
finds that this is true, the court
can immediately dismiss the
bankruptcy and impose other legal
and monetary sanctions on you. Also,
in California, laws have been passed
favoring the landlords. Apparently,
landlords can evict even a tenant
files a bankruptcy.
Under some circumstances once the
bankruptcy proceedings have started,
special motion can be filed to
remove certain liens. It will take a
bankruptcy court order to remove
them. This is a complicated area of
the bankruptcy law and an attorney
should be consulted. However, here
are the guidelines for removing tax
liens:
You can discharge
(wipe out) debts for federal income
taxes in Chapter 7 bankruptcy only
if all of these five conditions are
true:
- The IRS has not
recorded a tax lien against your
property. (If all other conditions
are
met, the taxes
may be discharged, but even after
your bankruptcy, the lien
remains against all
property you own, effectively giving
the IRS a way to collect.) - You
didn't file a fraudulent return or
try to evade paying taxes. - The
liability is for a tax return (not a
Substitute or Return) actually filed
at least two
years before you
file for bankruptcy. - The tax
return was due at least three years
ago. - The taxes were assessed
(you received a notice of assessment
of federal taxes from
the IRS) at
least 240 days (eight months) before
you file for bankruptcy.
33. What happens to my
credit rating after bankruptcy?
It sucks. Plain and simple.
However, you can reestablish
credit and get an "A" credit
mortgage three to fours years after
the discharge of bankruptcy.
However, it may be very difficult to
get a credit card until the
bankruptcy falls off of your report.
For more information on
reestablishing your credit, please
see
credit tips. The
bankruptcy is a judgment and will be
listed for a period of up to 10
years after the discharge.
35. How long will a
bankruptcy stay on my credit report?
A Chapter 7 bankruptcy stays on
your credit report for 10 years from
the date the bankruptcy is
discharged. However, it stays on
your court records for 20 years, as
public record.
36. Do I need to be a
U.S. Citizen in order to file
bankruptcy?
No, you don't have to be a
resident. If you are a non-citizen,
but have a Social Security card or a
Tax ID, you can file a bankruptcy.
If you don't have a United States
ID, but own property in the U.S.,
you can still file a bankruptcy.
If you file the bankruptcy
yourself, you must fill out the
forms. There are several forms.
There could be between 30 and 60
pages in your petition, schedule and
other papers filed at the time of
your bankruptcy. You must follow the
local and federal bankruptcy court
rules in completing the forms.
Preparing these forms requires an
understanding of both bankruptcy law
and local state law in order to
enter the information correctly and
accurately. A bankruptcy attorney is
recommended.
40. Is it true that I
have to go to credit counseling in
order to file bankruptcy?
Yes. Within 6 months before
filing a Chapter 7 bankruptcy, you
must you must get credit counseling
from a government approved
organization within six months
before you file for bankruptcy
protection.
Bohlman Law Offices, PC is a debt
relief agency. We help people file
for bankruptcy relief under the
bankruptcy code.
The United States
Bankruptcy Code and the Illinois
Mortgage Foreclosure Act contain
complex and time-sensitive
provisions. If you are considering
bankruptcy, we strongly recommend
that you contact a qualified
bankruptcy attorney right away to
help you determine whether
bankruptcy is an appropriate option
and to preserve your rights under
the law.
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