There are no stupid questions. You probably have very reasonable questions about how filing bankruptcy will affect you personally. Over the years, I have answered many recurring questions. Here are the 16 most frequently asked questions about bankruptcy.
If I file for bankruptcy, can I keep my belongings?
Yes, in most cases. For the vast majority of Chapter 7 personal bankruptcies, you can keep all of the property you own. Federal and state exemption laws allow you to keep most of your possessions, including your home, cars, furniture, clothing, retirement accounts, cash, and other property, up to certain limits. Because Chapter 13 bankruptcy provides for the repayment of creditors, you are even more likely to keep your possessions.
Once the bankruptcy is finished, will creditors still be able to collect on the debt?
Absolutely not. From the moment you file for bankruptcy the court issues an Automatic Stay stops all creditor action. Creditors may not contact you in any way, nor may they attempt to collect on any debts you may owe them. Once you emerge from bankruptcy and receive your discharge order, your debt is legally extinguished. No creditor may attempt collection on a legally discharged debt. If a creditor continues to attempt collection, then that creditor may be liable to you for damages.
Must both spouses file for bankruptcy?
No, both spouses need not file bankruptcy. If one spouse owes more debt than the other spouse, in many cases it makes sense for just one spouse to file. If both spouses owe many debts, however, then a joint bankruptcy may be a better option. But a joint filing is not a requirement. Unique circumstances require thorough examination of which debts and what property between spouses are jointly or individually owned. Either or both spouses may declare personal bankruptcy, but there is no requirement that both spouses file.
If I’ve already filed for bankruptcy, can I file again?
Yes, you can file bankruptcy again. You can file for Chapter 7 bankruptcy once every eight years. There is no limit to the number or Chapter 13 bankruptcies you may file. In any individual case, a conversion between Chapter 13 and Chapter 7, or vice versa, may be to your advantage. Advice from counsel is recommended in cases involving multiple bankruptcy filings.
If I file for bankruptcy, will I ever get good credit again?
You can obtain excellent credit after bankruptcy. After a typical Chapter 7, you not only have no zero debt. You also cannot file another bankruptcy for another eight years. Creditors know this and subsequently consider you an excellent credit risk. For the first few years after filing for Chapter 7, you will not get the best mortgage or auto loan interest rates. However, after a few years of rebuilding your credit, you will get the same rates as everyone else. After 10 years, the bankruptcy will no longer even appear on your credit report. The ability to obtain credit after a Chapter 7 bankruptcy depends wholly on how you use your financial fresh start.
How long does the bankruptcy process take?
A Chapter 7 takes about three months from the date of the filing to the date you receive your discharge. A Chapter 13 typically takes 36-60 months (or three to five years) from start to finish. In some situations it is necessary to move quickly — as in the case of filing to stop a foreclosure auction. Many cases, however, are not time-sensitive. You should file bankruptcy only if you are fully convinced that it is the right choice for you.
Can I keep certain credit cards that I’m current on?
When you file for bankruptcy, you must list all of your property and all of your debts. Your creditors receive notice of your bankruptcy. And every credit card on which you owe money will be promptly deactivated and closed. If you have a zero balance on a credit card at the time of filing, then that is not a debt and need not be listed. Sometimes the credit company will allow the account to remain open. Other times, however, even accounts with no balances will be closed when you file.
Can I continue to use my credit cards until I file for bankruptcy?
Credit card companies regularly challenge out-of-the-ordinary expenses charged immediately prior to a bankruptcy filing. You may use your cards for necessities only. Large purchases (or even worse, cash advances) transacted shortly before the bankruptcy filing are closely scrutinized. Your case may be dismissed for bad faith if it appears that you intentionally ran up bills prior to filing. Do not run up your credit cards before filing for bankruptcy.
How do I pay my bankruptcy attorney?
In a Chapter 7 bankruptcy, you must pay your attorney prior to the filing of the bankruptcy. Some people prefer to pay in installments, while other clients wait until they have payment in full. In a Chapter 13 bankruptcy, your attorney’s fees may be split between up-front payment and payment through the Chapter 13 Plan.
What do I bring to my initial consultation?
Get a free credit report at http://www.annualcreditreport.com. Your latest paystubs can also be helpful. If you haven’t recently considered your monthly budget, then think a bit about your income and expenses before you meet with a bankruptcy attorney. You should also know, roughly, how much you owe; whether your debts are individually or jointly owned; and whether you want to keep or surrender secured collateral.
What is the Meeting of Creditors and who is the bankruptcy trustee?
In most cases, you will not have to appear before a judge in bankruptcy court. Yet every individual who files for bankruptcy must attend the Meeting of Creditors. At the meeting, the trustee assigned to the case will question you about your assets and income. You must answer these questions truthfully. You will be under oath. Most meetings of creditors are short and uneventful. In most cases creditors do not attend the meeting.
What is the Automatic Stay?
Section 362 of the U.S. Bankruptcy Code creates a form of injunction called the “automatic stay.” The automatic stay immediately halts actions by creditors to collect on debts. The automatic stay begins at the moment the bankruptcy is filed. The automatic stay provides powerful protections from creditor actions. Should a creditor attempt to collect on a debt while the debtor is protected by the automatic stay, that creditor is in direct violation of a court order and may be liable to the debtor for money damages.
What is the bankruptcy “discharge?”
The bankruptcy discharge is a permanent injunction prohibiting creditors from attempting to collect on debts. You will no longer be legally required to repay any discharged debts. Usually, the main purpose of a bankruptcy is to obtain the bankruptcy discharge. The bankruptcy discharge eliminates your liability while enjoining creditors from collection activity. The bankruptcy discharge also voids any judgments arising prior to your bankruptcy.
Can bankruptcy help me prevent foreclosure?
Bankruptcy stops foreclosure, at least temporarily. If the bank schedules a foreclosure auction, you must act quickly. Chapter bankruptcy 13 will stop the foreclosure auction. In your Chapter 13 Plan, you can repay the missed mortgage payments over time, not all at once. If you want to sell your home, Chapter 13 allows you the time to market and sell your property.
Can I keep my bank accounts?
You can keep your bank accounts in most bankruptcy cases. If you have a debt with your bank or credit union, however, then you must withdraw all money and close that bank account prior to filing bankruptcy. Otherwise, the bank may exercise its right to “setoff” and seize the money in the account you hold with them. Prior to filing for bankruptcy, most people open a new account at a bank or credit union to whom they owe no money.
What are the most common reasons someone would declare bankruptcy?
Every case is different, just like every client is different. Medical bills, difficulties paying a mortgage, or just plain too much debt can all lead to bankruptcy. You may be overextended financially and need to pare back some obligations while keeping others. Some people are forced into bankruptcy by the actions (or wrongdoings) of a business associate, friend, or former spouse. The circumstances leading to the necessity for a bankruptcy are as many and varied as clients themselves.