Bankruptcy Frequently Asked Questions
If you’re filing for bankruptcy, you need a qualified bankruptcy lawyer on your side. At Pearce Law Firm we can help you navigate the legalities of filing for bankruptcy and will help you understand all of your options. Read through our bankruptcy FAQs to learn more about the ins-and-outs of filing for bankruptcy, and give us a call if you have more questions.
What is a Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, sometimes call a straight 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 usually within four months. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick “fresh start”. One of the main purposes of Bankruptcy Law is to give a person, who is hopelessly burdened with debt, a fresh start by wiping out his or her debts.
What is Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy is also known as a reorganization bankruptcy. Chapter13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.
Will my creditors stop harassing me?
Yes, they will! By law, all actions against a debtor must cease once the bankruptcy documents are filed. Creditors cannot initiate or continue any lawsuits, garnish wages, or even make telephone calls demanding payments.
Will my spouse be affected?
Your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they have a supplemental credit card they are probably responsible for that debt.
Who will know if I file for bankruptcy?
Bankruptcy filings are public records. However, under normal circumstances, no one will know you went bankrupt unless you tell them. The Credit Bureaus will record your bankruptcy and it will remain on your credit record for 10 years.
What are the most common reasons for a Chapter 7 Bankruptcy?
- Large medical expenses
- Seriously overextended credit
- Marital problems, and
- Other large unexpected expenses
A Harvard Study reported that half of US bankruptcies were caused by medical Bills (MSNBC). The study was published online in February of 2005 by Health Affairs. The Harvard study concluded that illness and medical bills caused half (50.4 percent) of the 1,458,000 personal bankruptcies in 2001. The study estimates that medical bankruptcies affect about 2 million Americans annually — counting debtors and their dependents, including about 700,000 children.
Can I keep my credit cards?
Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are discharging a credit card they will cancel the card unless you reaffirm the debt. Even if you have a zero balance the credit card company might cancel the card.
When will I be discharged from bankruptcy?
One of the major purposes of bankruptcy legislation is to afford the opportunity to a person hopelessly burdened with debt to erase his or her debt and thereby get a fresh financial start. A bankrupt’s debt is erased when he or she is discharged. The debtor is discharged 3 – 5 months after bankruptcy is filed. At that time all debts (with some exceptions) are written off.
Will I get a better credit rating if I use a credit counselor than if I go bankrupt?
No, you will not. It will cost you less money and you will rebuild your credit rating faster if you file Chapter 7 or Chapter 13. Be cautious if you are considering using a credit counselor. If considering this route, we suggest that you read about the problems of unscrupulous companies in the credit counseling industry and the action the IRS has taken against “non-profit” credit counseling groups following widespread abuse.
Will I ever get credit again?
Yes! A number of banks now offer “secured” credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment. Usually the credit limit is equal to the security given and is increased as the debtor proves his or her ability to pay the debt. Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past. The fact you filed bankruptcy stays on your credit report for 10 years. It becomes less significant the further in the past the bankruptcy is. The truth is, that you are probably a better credit risk after bankruptcy than before.
Can I be fired from my job for filing bankruptcy?
No. U.S.C. Sec. 525, prohibits any employer from discriminating against you because you filed bankruptcy.
How much am I allowed to keep?
You are allowed to keep certain assets, depending on the state in which you reside. In Alabama, the limits are as follows:
- Homestead – $5,000
- Other personal property – $3,000
- Family pictures and keepsakes – No limit
NOTE: These are the major bankruptcy exemptions. Check with your bankruptcy lawyer for a full exemptions list.
* A Husband and Wife Filing Together may Double the Exemptions Value.
What don’t I keep?
When filing bankruptcy a person will be able to keep all of their property that is not in excess of the personal bankruptcy exemptions allowed in their state.
If I was bankrupt before, when can I file again?
A person can file Chapter 7 again if it has been more than 8 years since he or she filed the previous Chapter 7 bankruptcy.
What debts are erased by a bankruptcy?
Most unsecured debt is erased in a bankruptcy except for:
- Child support and alimony
- Debts for personal injury or death caused by your drunk driving
- Student Loans (in some situations taxes are discharged)
- Income tax debt (in some situations they can be discharged)
Contact us for more detailed information about debt that might survive bankruptcy.
The following debts are not erased in both Chapter 7 and Chapter 13. If you file for Chapter 7, these will remain when your case is over. If you file for Chapter 13, these debts will have to be paid in full during your plan. If they are not, the balance will remain at the end of your case:
- Debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case
- Child support and alimony
- Debts for personal injury or death caused by your intoxicated driving
- Student loans from government organizations, unless it would be an undue hardship for you to repay
- Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution, and
- Recent income tax debts and all other tax debts.
In addition, the following debts may be declared non-dischargeable by a bankruptcy judge in Chapter 7 if the creditor challenges your request to discharge them. These debts may be discharged in Chapter 13. You can include them in your plan, and at the end of your case, the balance is wiped out:
- Debts you incurred on the basis of fraud, such as lying on a credit application
- Credit purchases of $1,225 or more for luxury goods or services made within 60 days of filing
- Loans or cash advances of $1,225 or more taken within 60 days of filing
- Debts from willful or malicious injury to another person or another person’s property
- Debts from embezzlement, larceny or breach of trust, and
- Debts you owe under a divorce decree or settlement unless after bankruptcy you would still not be able to afford to pay them or the benefit you’d receive by the discharge outweighs any detriment to your ex-spouse (who would have to pay them if you discharge them in bankruptcy).
What does it cost?
Our fees are on a case by case basis, however we do provide a free initial consultation. You can keep the fees down by being well organized and well prepared.