Answers To Your Bankruptcy Questions
Frequently Asked Questions About Bankruptcy
Please follow the links below to get answers to FAQs about bankruptcy:
- What is Bankruptcy?
- Can I go to jail for filing bankruptcy?
- Are there any reasons to file Chapter 13 if you qualify for Chapter 7?
- How long does the bankruptcy process take?
- What does it mean to have my bankruptcy case discharged?
- What debts are discharged?
- Can I file with or without my spouse?
- Will bankruptcy affect my spouse?
- Will I lose my retirement account if I file for bankruptcy?
- Should I use my 401(k) to pay my debts?
- How long does the whole bankruptcy process take?
- How does bankruptcy affect a cosigner?
- Can I keep certain debts out of the bankruptcy?
- I signed a document that said I wouldn't file-can I still file for bankruptcy?
- I have heard a lot about consumer credit counseling being a better option than bankruptcy. Is that true?
- I can't make my mortgage payments. Can bankruptcy help me?
Bankruptcy is the legal method by which a debt-ridden person may eliminate debt and obtain a new financial beginning. The filing of bankruptcy will immediately stop the efforts of creditors from seeking to collect upon debts. In most cases, bankruptcy will completely eliminate the debt one owes to creditors. Federal law provides the right to file for bankruptcy, and all bankruptcy cases are handled in federal court.
No. There are no debtor's prisons in the United States.
Yes, some choose to file a repayment plan under Chapter 13, even when they qualify for Chapter 7 when:
- They owe debts not dischargeable in Chapter 7 (such as taxes, child support, fraud judgments) and need time to repay those debts
- They have liens that are larger than the value of the assets securing the debt, which may be wiped out, or stripped, in Chapter 13 bankruptcy
- They are behind on car or house payments, want to keep the property, and will use the repayment period to get current on their loan
- Their assets are worth more than the available Chapter 7 bankruptcy exemptions
- They filed a prior Chapter 7 bankruptcy within the last eight years
The discharge of debt from a Chapter 7 filing usually takes about four to six months. The payout process from a Chapter 13 plan can take anywhere from three to five years.
When a case is discharged, it means that the court has released a debtor from the obligation to pay back his or her dischargeable debts (unless the debtor opted to retain a specific debt, such as a car and the associated payments). Dischargeable debts are those that can be wiped away by bankruptcy. A discharge also orders creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. For a Chapter 7 case, it generally takes about three months from the day of filing to receive a discharge. For a Chapter 13 case, it could take three to five years. However, a debtor could elect to receive a partial discharge if he or she does not wish to complete his or her plan. This would mean his or her case could be discharged in less time, but there would be more outstanding.
It is likely that most of your debts will be wiped out by the bankruptcy. As a general rule, unless your debt is one listed below, it will be discharged by the bankruptcy.
- Alimony, maintenance or support
- Debts owed to the government, like taxes or fines
- Most student loans
- Debts involving fraud, embezzlement, larceny
- Secured debts on a property the debtor opts to keep
- Debts incurred by driving under the influence causing personal injury
- Debts incurred for luxury goods or cash taken immediately before bankruptcy from a credit card
Yes. You can file a joint case, which may be the best choice if each has debts or there are joint debts. However, you can also file alone without harming your spouse's credit.
If you file for bankruptcy without your spouse, your spouse's income will need to be reported, but the bankruptcy will have no meaningful impact on your spouse. Your spouse's credit will not be harmed, and your spouse will not be required to make any appearances, sign any documents or otherwise be involved in the case.
No. Your 401(k), pension plan, deferred compensation plan, IRA and ROTH IRA are protected from bankruptcy. You will not be required to use any of your retirement funds to pay your debts in a bankruptcy proceeding. (Note that there is an exception, if you inherited the retirement account.)
No! Cashing out your 401(k) is a terrible idea for people with debt problems. Your 401(k) is safe in bankruptcy, but once you pull the money out it becomes fair game for creditors, is used as income in determining whether you qualify for Chapter 7 bankruptcy, and is counted as taxable income by the IRS. Filing bankruptcy is a better option to cashing out your retirement accounts. After bankruptcy you can have a debt-free future WITH the benefit of your retirement savings.
It depends. It usually takes three to four months in a Chapter 7 to receive your discharge. However, the case may not officially close until many months later. In a Chapter 13, you must complete the entire plan, which will last three to five years.
Chapter 7: If a debtor files for bankruptcy and intends to surrender a piece of collateral that had a cosigner, the creditor will try to collect the debt from the cosigner. If the debtor intends to continue making payments on the secured loan with the collateral, the creditor will not contact the cosigner. On the other hand, if a debtor is a cosigner on a loan, the debtor can surrender his or her interest in the loan and would no longer be held liable for the debt.
Chapter 13: If a cosigned consumer (non-business) debt is being paid in full in a Chapter 13 bankruptcy, the creditor cannot collect the debt from the cosigner. However, if this debt is notbeing paid in full (only a percentage), the creditor may attempt to collect the unpaid portion of the debt from the cosigner when the case is completed. Keep in mind, this does not apply to cosigned business debts, even if the debts are to be paid in full in the Chapter 13 bankruptcy plan.
All of your debts need to be listed in your filed paperwork. However, you can elect to "reaffirm" certain secured debts, which means that you will keep the property securing the debt, and the debt will survive the bankruptcy.
Yes. There are many people out there who think that if they sign a document that says they won't file for bankruptcy, then they lose that right. It doesn't matter what you have signed. You can still file for bankruptcy.
No. Why? These organizations are basically collection agencies working for or controlled by the credit card companies. Many of them are outright scams where the company pockets your money (they require the first month's payment go directly to them, not to your debts) and does nothing for you. Additionally, they can only help you reduce the interest payments on your credit card debt (not your medical bills, tax bills or other debts that can be wiped out by bankruptcy). This still leaves you with your original debt amount. You cannot begin a fresh start and rebuild your credit until you get rid of that debt.
Contact us today for a free consultation to discuss the differences between the legal protections of bankruptcy and the unregulated and often misleading world of credit counseling.
Yes. Filing for bankruptcy starts the automatic stay, which halts any foreclosure proceedings against your home for months or even years. This time may take the pressure off, enabling you to make your payments in the future.
If you will be able to make your mortgage payments in the future and simply need time to catch up, a Chapter 13 bankruptcy will give you three to five years to cure any arrears on your mortgage and keep you in the home.
However, if your financial situation is such that you will not be able to make future mortgage payments, then filing for Chapter 7 bankruptcy can give you three to five months to get your finances in order while your case proceeds. You will likely be able to live in your house without making any mortgage payments for most of this time. This will give you time to save money to put toward your next living situation.