Bankruptcy FAQs

You must reside or have a domicile, a place of business, or property in the United States or a municipality. You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan. You must not have had a bankruptcy filing dismissed for cause within the last 180 days. It must not be a “substantial abuse” of bankruptcy to grant the debtor relief.

Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7. It would not be fundamentally unfair to grant the debtor relief under Chapter 7 or Chapter 13.

More so than in any other time in our country’s history, our economy is based on consumer debt. In fact, in this age of multi-billion dollar corporate bailouts, easy credit and relentless bombarding of seductive messages cajoling us to “charge, consume, buy” it is not surprising that so many people are drowning in debt.

For many of us, this debt is insurmountable and is causing family problems and feelings of hopelessness and even suicide. With credit card interest rates of 18-21%, many feel like modern day indentured servants. Many times, the debt is occasioned by unforeseen events such as loss of a job or medical bills, but more often it is simply poor planning. Nevertheless, in instituting our bankruptcy laws, Congress recognized that responsible, well-intentioned people could from time to time run into financial problems. By allowing you to recover from your debt burden you will be able to start afresh, look to the future and become a more productive member of society. This is good for you and for good for society as a whole.

There are several situations where a chapter 13 is preferable to a chapter 7. A chapter 13 bankruptcy is normally for people who have too much income to file a Chapter 7 bankruptcy or have the kind of debt that is non- dischargeable in a Chapter 7 (e.g. certain taxes). Also, people file Chapter 13 because they are behind on their mortgage or business payments and are trying to avoid foreclosure. A chapter 13 bankruptcy allows them to make up their overdue payments over time and to reinstate the original agreement. Also, where a debtor has valuable nonexempt property and wants to keep it, a chapter 13 may be a better option.

However, for the vast majority of individuals who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice.

Yes, When you file bankruptcy, federal law imposes an “automatic stay” which precludes your creditors from taking any action to collect debts against you including court judgments and tax debts during the pendency of the bankruptcy. For instance, if you have been served by one of your creditors to appear in court over a debt, the bankruptcy filing will stop this lawsuit.

Any wage garnishments or repossession efforts are also halted. However, once the bankruptcy is over, a creditor holding a claim that was not discharged may proceed to collect on the debt. Also, under some circumstances a secured creditor may proceed to collect on the lien he has on the filer’s asset during the bankruptcy proceeding, but may only do so by filing a court motion and by getting the approval of the bankruptcy court first.

Although the record of filing bankruptcy may technically stay on your credit for up to 10 years, often by making payments on time subsequent to your bankruptcy you can regain an “A” credit rating within 2 years of your discharge.

Ironically, in many cases filing bankruptcy may actually help your credit rating because discharging your debts greatly improves your debt to income ratio which is a major criteria creditors use in judging your “creditworthiness” (see below). In fact, many people report a flood of pre- approved credit cards within weeks of a bankruptcy discharge.

By all accounts, bankruptcy no longer has stigma attached to it that it once did. Perhaps, this is one of the reasons that the number of filings has been dramatically increasing over the last several years.

The credit card accounts that you have a zero balance on are not technically creditors and thus are not discharged in bankruptcy. Often these creditors will allow you to keep your credit with them.

If you do have an outstanding balance when you file, you may still be able to keep your account. To do this you usually must agree with the creditor to pay off the balance. Once you make an agreement with the creditor you must file the “reaffirmation agreement” and get the approval of the bankruptcy court. It is advisable to consult legal assistance before you reaffirm an otherwise dischargeable debt. Some creditors will allow you to get a new account with them by reapplying with them even though you discharged their debt in the bankruptcy.

In most cases, completing and filing your petition is the hardest part. If your bankruptcy petition does not raise any red flags for the trustee or your creditor(s), you’re usually in good shape. Thirty to forty days after filing the petition, you are required to attend the “First Meeting of Creditors” or “Section 341(a) Examination.”

At this meeting, creditors are given the opportunity to ask you questions. There is no judge for this hearing, just the Trustee in charge of your case. However, in most “no asset” cases, rarely do creditors show up for this hearing. Normally there is a room full of other filers and the questioning by the Trustee is very limited since they are usually pressed for time.

In most cases, the key to the success of your case lies in your bankruptcy petition. Normally, 4-6 months from the time the petition is filed, you are granted final discharge of your debts.