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Frequently Asked Questions Regarding Bankruptcy

by Nemia L. Schulte, Esq.

What is a Chapter 7 bankruptcy? 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. Within 4 to 5 months after filing a Chapter 7 bankruptcy, the debtor receives a discharge (i.e., a "wiping out") of all dischargeable debts.

Who can file a Chapter 7 bankruptcy? The debtor must reside or have a domicile, a place of business, or property in the United States or a municipality. The debtor must not have been granted a Chapter 7 discharge within the last 6 years. In addition, the debtor must not have had a bankruptcy filing dismissed for cause within the last 180 days.

What is a Chapter 13 bankruptcy? Chapter 13 is a reorganization of debt. The debtor pays back creditors through a monthly "plan" payment handled by the bankruptcy trustee. Generally, the duration of the plan ranges from 3 to 5 years.

Who can file a Chapter 13 bankruptcy? The same filing requirements apply to Chapter 13 debtors as to Chapter 7 debtors, with some differences. Normally, the Chapter 13 debtor must have a steady income and his/her secured debts cannot exceed $750,000 and his/her unsecured debts cannot exceed $250,000.

What are the most common reasons for filing a Chapter 7 bankruptcy? The most common reasons for consumer bankruptcy are: unemployment; large medical expense; seriously over-extended credit; marital problems and other large unexpected expenses.

What are the most common reasons for filing a Chapter 13 bankruptcy? Generally, a person files for a Chapter 13 bankruptcy to keep real property which payment is in default (i.e., stop foreclosure proceeding). Under a Chapter 13 plan, the debtor will be able to pay all back payments over a period of time (for example, three years).

Is it true that I can wipe out all of my bills? The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding. Not all debts are dischargeable. For example, the following debts are generally not dischargeable: taxes; spousal and child support; student loans; criminal fines and penalties; debts arising out of willful or malicious misconduct; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy. Those debts, which are secured, may be discharged; however, the creditor will probably take the necessary legal steps to take back the property.

Does the filing of bankruptcy stop the bill collectors from calling or contacting me? Yes. One of the major benefits of filing for protection under Chapters 7 and 13 is that many creditors’ actions are stayed. This means that debt collection efforts and foreclosure must be halted until further order of the bankruptcy court

How long after the bankruptcy is filed will the creditors stop calling? Once a creditor or bill collector becomes aware that the debtor has filed for bankruptcy protection, he/she must stop all efforts to collect the debt. If a creditor continues to use collection tactics after notification of the bankruptcy proceeding, he/she may be liable for court sanctions and attorneys’ fees.

Can I keep my home after bankruptcy? Under a Chapter 7 proceeding, you may be able to keep your home through a reaffirmation agreement so long as you are current in your mortgage payments. However, even if you do owe back payments, you may still be able to keep your home through a proposed Chapter 13 monthly plan wherein you would pay all back payments over a period of time (normally three years). Notwithstanding, the State of Florida is considered a debtor’s haven when it comes to homestead protection. In Florida, there is no limit as to the amount of equity you can keep in your home. What this means is that most creditors will not be able to reach this equity to satisfy a debt you owe to them.

What types of personal property may I keep? In Florida, you are permitted exemptions for up to $1,000.00 total of personal property, including personal property such as household furnishings and personal effects, clothes, jewelry, personal injury award and other miscellaneous property. You are allowed an additional $1,000.00 exemption on the equity in your automobile. In addition, there is no limit as to the amount you may keep in your retirement plans, pension plans, annuities and unmatured life insurance.

Can I keep my credit cards after bankruptcy? A debtor has the right to keep any debt he/she desires. Sometimes, a debtor may want to keep a credit card after bankruptcy. In such case, the debtor reaffirms the debt. This means that the debtor takes the debt out of bankruptcy. The debtor may keep and continue to use the credit card under the original terms of the agreement with the creditor; however, the debtor is personally responsible for the payment of the debt incurred prior to bankruptcy.

I am married, does my spouse also have to file bankruptcy? No. In some cases where only one spouse has debts, or where the other spouse has debts that are not dischargeable, then it might be advisable to have only one spouse file. However, in some cases where real property is involved, or where the spouse is a co-debtor on most of the other spouse’s dischargeable debts, then the question of joint bankruptcy is a little trickier, and questions should be referred to an attorney.

What happens to my personal property, real property and other assets? Once the bankruptcy is filed, all of the property of the debtor at the time of filing and certain other property to be received in the future, become the property of the bankruptcy estate. This means that the bankruptcy trustee will take control of this property for purposes of satisfying the creditors. HOWEVER, there is certain property which is either excluded or exempt and the debtor will be able to keep it. Property or asset exemption is determined based upon a statutory scheme. As discussed above, you are allowed an unlimited exemption on the equity in your home, certain pension and retirement plans, annuities and unmatured life insurance.

Will my employer find out about my bankruptcy? Unless your employer is a creditor, generally your employer will not be notified of your filing.

Will I lose my job? No. Bankruptcy laws prohibit discrimination based upon a debtor filing for bankruptcy protection.

Can I go to jail if I file bankruptcy? No. There is no debtor's prison in the United States.

Will bankruptcy stop a wage garnishment? Yes. However, the debtor cannot recover that amount already garnished by the creditor before the debtor filed for bankruptcy.

Will bankruptcy stop a foreclosure? Generally, yes. However, since a home is an asset usually secured by a deed of trust, the lender will be 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 may be able to keep your home under a Chapter 13 filing.

Will bankruptcy stop an eviction? Perhaps. However, this will only delay the inevitable. The landlord 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 to go forward with the eviction. If the only reason you file for bankruptcy is to stop an eviction, this might 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 against you.

Will bankruptcy stop a judgment? Yes. Most civil judgments are stopped by bankruptcy.

Will bankruptcy remove a lien? Under some circumstances once the bankruptcy proceedings have started, a 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, generally, you may not remove already existing tax liens.

I am a co-signer for a debt, how does bankruptcy affect my obligation? If the debt is a dischargeable debt, then you will not have to pay it. However, the other co-signer becomes primarily responsible for the debt.

Who notifies the creditors and bill collectors of my bankruptcy filing? After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditors immediately.

What if I forget to list a creditor on my bankruptcy papers? You are permitted to file an amendment to your schedules up to a certain time before discharge. If the amendment is timely filed, then the omitted creditor is added to the bankruptcy. However, if you fail to list a creditor, you may not be able to use the bankruptcy laws to protect you against that creditor. Accordingly, it is in your best interest to list every creditor, whether or not you dispute his/her claim against you.

Do I have to go to court? Yes. About 30 to 40 days after you file for bankruptcy, you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing the trustee will ask you questions under oath regarding the content and accuracy of your bankruptcy papers. After the trustee is done, the creditors will be permitted to question you. If you have an attorney, your attorney will be there to represent you and will help prepare you for the hearing. Sometimes, after your hearing is over, various creditors will approach you to discuss the status of secured property or your desire to retain a credit card. Your attorney will negotiate with them, with your knowledge and approval. After this hearing, you will normally not need to return to court. However, if a creditor files a motion or an adversary action, you will probably have to return to court. This is the exception and only your attorney can determine if this likely to happen.

How long before I get my Chapter 7 discharge? Under normal circumstances, the bankruptcy court will automatically issue the discharge approximately 90 days after the First Meeting of Creditors. What this means is all of the debtor’s dischargeable debts are now "wiped out" and the creditors of those debts may not take any actions against the debtor to satisfy those debts.

What happens to my credit rating after bankruptcy? The bankruptcy is a judgment and will be listed on a credit report for a period of ten years.

After bankruptcy, how do I re-establish my credit? There are at least two ways to get credit after bankruptcy. First, one of your existing creditors may continue to grant you credit based upon a reaffirmation agreement made during the bankruptcy proceeding. Second, today there are several banks offering a secured credit card. This means that the credit limit is based upon the amount of security given. Note also that many creditors are more likely to extend you credit after you file for bankruptcy than before your filed. With all of your dischargeable debts wiped away, creditors view the debtor of now having more disposable income to pay the new debts. In addition, creditors know that the debtor cannot file for bankruptcy for another six years, thereby shielding creditors from the bankruptcy laws during this time period.

Is there anything that I should not do if I am contemplating filing for bankruptcy? There are several areas related to this question. You should consult your attorney. In particular, there are three items worth mentioning. First, under bankruptcy law, certain purchases of luxurious items over $1,000 within 60 days of filing for bankruptcy are presumed to be nondischargeable. Also, under bankruptcy law, cash advances aggregating $1,000 within 60 days of the bankruptcy filing are presumed to be nondischargeable. Last, debts involving materially false financial statements are nondischargeable under certain circumstances.

If I need to file bankruptcy again, how long do I have to wait? You must wait 8 years to file again or if your bankruptcy was dismissed you must usually wait 180 days to refile.

Who can help me with my bankruptcy? The best person to help is your attorney. When you discuss your situation with your attorney, you will need to be prepared to discuss all areas of your case. This includes each and every debt and creditor you have. It is very important to list all your creditors in your bankruptcy. One of the best ways to know all your creditors is to get a credit report about your credit history. This report should list the majority of your creditors, even ones you did not know about.

Are there any alternatives to bankruptcy? Aside from debtor protection under the bankruptcy laws there are some other alternatives. These include loan extensions, compromises, workout agreements and taking no action. All but the last require negotiation skills and experience. These alternatives may alert your creditors to the existence of nonexempt property that the creditor could reach. In any event you should seek professional advice in dealing with most of these alternatives.

About the Author

Nemia L. Schulte is an attorney from Pompano Beach, Florida. She can be reached at http://www.123law.com/ and nemia@123law.com

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