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Bankruptcy FAQs


What is Bankruptcy?

Bankruptcy is a legal proceeding available to individuals, couples, or businesses to help resolve financial problems. The two most common types of bankruptcy utilized by individuals are bankruptcies under Chapter 7 or Chapter 13 of the Bankruptcy Code. A Chapter 7 bankruptcy is used to eliminate the responsibility to repay most debts and to obtain a fresh financial start. A Chapter 13 bankruptcy is used to repay some or all of an individual’s creditors over a period of three to five years while under the protection of the bankruptcy court.

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Who is a Debtor?

A debtor is the individual or corporation filing for bankruptcy.

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Who is the Trustee?

The Trustee is not a judge. The Trustee is an attorney who is appointed to oversee and administer the bankruptcy case. The Trustee reviews the bankruptcy petition and the debtor’s assets to determine if there are any assets to liquidate. If there are any non-exempt assets, the Trustee will collect and sell the assets. The Trustee may also obtain documents and information from you in order to administer the bankruptcy case.

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Who is the U.S. Trustee?

The U.S. Trustee is an individual who is a part of the United States Trustee Program which is an agency of the United States Department of Justice. The U.S. Trustee is responsible for overseeing bankruptcy cases and private Trustees.

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What is a Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is a legal proceeding during which the bankruptcy Trustee collects the debtor’s non-exempt assets and liquidates them (reduces them to cash) in order to pay the debtor’s creditors. By statute, debtors who file a Chapter 7 bankruptcy are entitled to protect or “exempt” some of their property from being included in the property that the Trustee liquidates. Most Chapter 7 bankruptcies are “non-asset” cases, meaning that the debtor does not have assets for the Trustee to liquidate. In most Chapter 7 cases, the debtor receives a discharge that releases the debtor from personal liability for most debts. Some types of debt are non-dischargeable.

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What is a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is a legal proceeding available to individuals to repay a portion or all of their debts under the terms of a 3 or 5 year repayment plan while under the protection of the bankruptcy court. The most common reasons that individuals file under chapter 13 instead chapter 7 are if their income is too high to qualify for a chapter 7 bankruptcy; to protect assets that would otherwise be liquidated in a chapter 7 bankruptcy; to halt foreclosure and catch up mortgage arrearages over time; and/or to halt repossession of a vehicle. The individual filing for a Chapter 13 bankruptcy must have regular income with which to make the plan payments.

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Who May File a Chapter 7 Bankruptcy?

An individual, partnership, or corporation may file a Chapter 7 bankruptcy, provided that certain conditions are met and provided that the debtor qualifies. You may not file for Chapter 7 bankruptcy if you have received a discharge in a Chapter 7 bankruptcy within the last eight (8) years or if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. If you previously filed a Chapter 13 bankruptcy, you may file a Chapter 7 bankruptcy four (4) years after your Chapter 13 bankruptcy was discharged.

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Who may file a Chapter 13 Bankruptcy?

Individuals with unsecured debts less than $360,475.00 and secured debts less than $1,081,400.00 may file for a Chapter 13 bankruptcy. Corporations may not file for bankruptcy protection under Chapter 13.

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What Debts Can be Included in a Bankruptcy?

All of your debts MUST be listed on your bankruptcy petition. You should list all of your unsecured debts such as credit cards, medical bills, and personal loans, and all secured debts such as mortgages and car payments. Most people are able to discharge all or a majority of their unsecured debt which includes items such as credit cards and medical bills. A debtor has the ability to voluntarily repay a discharged debt if they so choose. The most common reason why an individual would repay a discharged debt is if the debt is owed to friends or family or because it represents an obligation to an individual for whom the debtor’s reputation is important.

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What is a Discharge in Bankruptcy?

A discharge in bankruptcy is an Order from the Bankruptcy Court which grants the Debtor’s request for relief and relieves the Debtor from personal liability for all the debts that were included in the bankruptcy petition.

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Will All of my Debts be Discharged?

Not all debts are discharged in a Chapter 7 bankruptcy. Section 523(a) of the Bankruptcy Code lists the debts that will not be discharged as part of a Chapter 7 bankruptcy. The most common non-dischargeable debts are student loans, domestic support obligations (alimony and child support), certain taxes, or debts that are determined to be fraudulent. Although a debtor is relieved of personal liability for all debts that are discharged, if a creditor obtained a valid lien on the Debtor’s personal or real property prior to the bankruptcy, and that lien was not “avoided” during the bankruptcy process, the lien will remain enforceable after the bankruptcy. If a judgment has previously been entered against you resulting in a lien on your property, please inform your attorney during your consultation. A Motion to Avoid the Judicial Lien may be necessary in order to render the lien unenforceable.

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When Does the Discharge Occur?

In a chapter 7 bankruptcy case, creditors are given 60 days (from the first date set for the 341 meeting) to object to the debtor receiving a discharge. The court usually grants the discharge promptly upon the expiration of the time period for the creditors to object. Typically, in a Chapter 7 bankruptcy, the Debtor will receive a discharge three to four months after the bankruptcy petition is filed. In a Chapter 13 bankruptcy, the Debtor will typically receive a discharge after three to five years.

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What Property May I Keep if I File Bankruptcy?

Just as a debtor must list all of his or her debts on their bankruptcy petition, all of a debtor’s assets must also be listed. The Bankruptcy Code provides certain amounts of various types of property that may be “exempt” or protected. Your attorney will discuss with you what property you may retain after you file for bankruptcy.

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Do I Have to Continue Making Payments on my House and my Car(s) While my Bankruptcy Case is Open?

If you would like to keep your house and/or car, then yes, you must continue making payments on these items while your bankruptcy case is open. Once your bankruptcy case is filed, most creditors will stop sending you statements due to the Automatic Stay that goes into effect. However, you must continue making payments if you intend to retain the items. If you have decided to surrender your house and/or car(s) as part of the bankruptcy process, you do NOT need to continue making payments on those items.

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What is a Motion to Avoid a Judicial Lien?

If one of your creditors has sued you and obtained a judgment against you, the creditor effectively has a judicial lien on your real and personal property. Once you file for bankruptcy, a Motion to Avoid the Judicial Lien can be filed with the bankruptcy court, in which a Debtor requests the Court to enter an Order rendering the creditor’s lien as unenforceable.

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What is the “Automatic Stay?”

When an individual or corporation files for bankruptcy, the Automatic Stay immediately goes into place. The Automatic Stay acts as a shield between you and your creditors. Once you have filed for bankruptcy, the Automatic Stay prevents your creditors from continuing their efforts to collect a debt from you. They can no longer contact you, cannot sue you, cannot garnish wages, cannot repossess your vehicle, and cannot foreclose on your home. In order to take any action to collect a debt from you once you have filed bankruptcy, the creditor has to file a Motion with the bankruptcy court to remove the Automatic Stay protection.

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What is the 341 Meeting of Creditors?

Approximately 30-45 days after your bankruptcy petition is filed, a hearing regarding your case will occur. It is mandatory that you attend this hearing. Failure to attend the hearing may result in dismissal of your case. The hearing does not occur in a courtroom, nor does it take place in front of a judge. The hearing normally will occur in a meeting room inside the courthouse. The Trustee runs the hearing. The purpose of the hearing is for the Trustee to ask you questions about your petition. Generally speaking, the hearings for most people last about 10-15 minutes. Depending on the complexity of your case, however, the hearing may take longer. Your creditors have the right to be present for the hearing and to ask you questions. You will have an attorney at the hearing to represent you; however, the purpose of the hearing is for the Trustee to talk to you. As such, your attorney will not be speaking for you at the hearing.

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Who Will Know that I Have Filed for Bankruptcy?

Bankruptcy petitions are public record. However, the only individuals who will be specifically notified of your bankruptcy filing are the individuals and companies listed on your petition as creditors. A notice of bankruptcy filing is not published anywhere or made known to the public. Nevertheless, because bankruptcy filings are public record, if someone was specifically looking to see if you have filed for bankruptcy, they would be able to see that you have filed. Additionally, your bankruptcy filing will also be listed on your credit report for 7-10 years, so anyone who pulls your credit report will see that you have filed.

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If I am Married, Must my Spouse Also File, or Can I File Alone?

Married couples may file a joint petition if both spouses have incurred debts that they wish to discharge. However, a married individual is not required to file a joint petition with their spouse. A married individual has the option to file with or without their spouse. If both spouses are considering filing for bankruptcy, it is more economical to file a joint petition as opposed to filing a single petition for one spouse and then a separate petition for the other spouse later.

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If I File Bankruptcy Alone, Will my Filing Affect my Spouse?

Yes and No. If you file for bankruptcy and your spouse does not, your filing will not appear on your spouse’s credit report and will not freeze your spouse’s credit. However, if you have any joint debts with your spouse, your bankruptcy filing could make your spouse solely responsible for the debts.

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Will Filing for Bankruptcy Affect My Job?

Under the Bankruptcy Code, an employer may not discriminate against a person solely because the person was a debtor in a bankruptcy case.

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Can I Keep Any Credit Cards?

All of your debts must be listed on your bankruptcy petition. Usually, once a creditor is notified that an individual has filed for bankruptcy, the credit card account is cancelled. However, if you wish to keep a particular card, occasionally credit card companies will allow you to keep your account open with them, so long as you agree to reaffirm the debt and continue making timely payments. If you have a credit card that you wish to retain, it is best to call the credit card company immediately after your bankruptcy petition is filed and notify them that you wish to keep your account with them.

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Will Filing for Bankruptcy Ruin My Credit?

No! This is a common misconception. By the time most individuals file for bankruptcy their credit scores have already lowered due to late payments or non-payment. Once you file for bankruptcy, the late payments or non-payments stop dragging your credit score down. Although your credit is frozen while your bankruptcy case is open, once you receive your discharge you no longer have a large amount of debt associated with your name, no longer have late payments, and no longer have non-payments showing on your credit. As such, your credit score should start to rise within the first year following your discharge. You will start receiving credit card offers in the mail again soon after your discharge. Of course, if you obtain a credit card or another form of credit after your discharge and then fail to pay your bill on time, your credit score is going to suffer.

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Can I Sell My House or Car After I File for Bankruptcy?

Once your Chapter 7 bankruptcy case is filed, almost all of your assets and property come under the Trustee’s control. As such, you will no longer have the right or legal ability to sell or transfer your assets while your bankruptcy case is open. However, once you receive your discharge, you may sell or transfer your assets.

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