Common Questions About Bankruptcy[yoast-breadcrumb]
Filing for bankruptcy can be a confusing process, with many legal terms and procedures that may be unfamiliar. Here are answers to some of the most frequently asked questions about bankruptcy to help you understand this complex topic.
What is bankruptcy?
Bankruptcy is a legal process governed by federal law that allows people and businesses overwhelmed by debt to get a fresh start. It lets them eliminate many of their debts or create a plan to repay them over time. There are several different types of bankruptcy filings, each with different rules and procedures. The most common for individuals are Chapter 7 and Chapter 13.
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy is sometimes called “liquidation” bankruptcy. It wipes out many unsecured debts like credit cards, medical bills, personal loans, etc. Certain assets may be sold by the bankruptcy trustee to pay back creditors. But people often get to keep exempt property like a home, car, work tools, and basic household items. Chapter 7 bankruptcy stays on your credit report for 10 years.Chapter 13 bankruptcy is also called “reorganization” bankruptcy. It allows people with regular income to get caught up on missed payments through a 3-5 year repayment plan approved by the bankruptcy court. People get to keep their property while paying off debts like car loans, mortgages, back taxes, etc. Chapter 13 bankruptcy stays on your credit report for 7 years.
What are the benefits of filing for bankruptcy?
The automatic stay immediately stops collection calls, lawsuits, wage garnishment, foreclosures, utility shutoffs, and other creditor actions when you file. Bankruptcy can eliminate most unsecured debts and allow you to catch up on missed payments for things you want to keep, like your home or car. It gives you a fresh start financially.
Can I keep my house and car if I file for bankruptcy?
In most cases, yes! The house and car can be protected in a Chapter 13 bankruptcy as long as you have enough income to make the monthly payments. Even in a Chapter 7 case, you may be able to reaffirm the debt and negotiate to keep making payments on the car. Each situation is different, so talk to a bankruptcy lawyer.
What debts can’t be eliminated in bankruptcy?
Certain debts can’t be discharged in bankruptcy:
- Alimony and child support
- Student loans (usually)
- Court fines and criminal restitution
- Debts not listed on your bankruptcy petition
- Loans obtained by fraud
Taxes and mortgages usually can’t be eliminated but payment plans can be set up through bankruptcy.
Will bankruptcy hurt my credit score?
Bankruptcy will negatively impact your credit, especially right after you file. However, it won’t permanently ruin your credit. Your score will start to gradually improve after about 12-18 months if you continue to manage credit responsibly. Getting discharged from debts in bankruptcy can actually help improve your credit over time.
How long does bankruptcy stay on your credit report?
- Chapter 7 bankruptcy stays on your credit report for 10 years.
- Chapter 13 bankruptcy stays on your credit report for 7 years.
The impact on your score lessens each year. Rebuilding credit after bankruptcy is possible.
Can I buy a house after filing for bankruptcy?
Yes, you can buy a house after bankruptcy! Most people can qualify for a mortgage 2-4 years after their bankruptcy discharge. Lenders may require a bigger down payment. Staying current on your bills and maintaining some open credit accounts in good standing will help a lot.
Do both spouses have to file for bankruptcy?
If only one spouse has debt in their name alone, they can file individually for bankruptcy. However, if there are joint debts or community property, it may be better for both spouses to file together. A bankruptcy lawyer can advise you on the best approach.
What are the alternatives to bankruptcy?
Some alternatives that may help avoid bankruptcy include:
- Debt management plan – Work with a credit counseling agency to consolidate debts and negotiate lower interest rates and payments.
- Debt settlement – Lump sum settlements are negotiated with creditors for less than the full amount owed.
- Debt consolidation loan – Combine multiple debts into one personal loan with lower interest.
- Refinancing your home – Take cash out to pay off other high-interest debts.
What property can I keep in a Chapter 7 bankruptcy?
All states allow people filing Chapter 7 bankruptcy to keep certain exempt property, such as:
- Primary home up to a certain value
- Vehicle up to a certain value
- Normal household furnishings and clothes
- Tools/books/supplies used for work
- Certain dollar amounts of equity in other assets
Non-exempt assets may be sold by the trustee, so talk to a lawyer about the exemptions that apply to your specific situation.
Can creditors object to my bankruptcy filing?
Yes, creditors can file objections if they believe you don’t qualify for the type of bankruptcy case you submitted. They can also object if your repayment plan does not meet requirements. An experienced bankruptcy lawyer can help ensure your case is filed properly.
Do I need to go to court when filing for bankruptcy?
You typically only have to go to one court hearing – the “meeting of creditors” where you meet with the bankruptcy trustee. This is a short informal hearing. You won’t see a judge unless there is a dispute in your case. The rest of the process involves filing paperwork.
How much does it cost to file for bankruptcy?
The court filing fee is $338 for Chapter 7 and $313 for Chapter 13. Attorney fees vary but expect to pay around $1,500+ for a straightforward bankruptcy. Legal fees can be paid over time. The court may also allow you to pay the filing fee in installments.
How do I find a good bankruptcy lawyer?
Look for an experienced bankruptcy attorney who belongs to professional associations and has good client reviews. Ask about their experience handling cases similar to yours. Meet for a free consultation before deciding who to hire.We hope these answers help you gain a better understanding of how bankruptcy works and what it can do for you financially. The bankruptcy process may seem complicated but a good lawyer can guide you through it every step of the way. If you have more questions, contact our office today to schedule a free case review.