NATIONAL
DIVORCE & BANKRUPTCY CENTER
NATIONAL
DIVORCE & BANKRUPTCY CENTER
FILING BANKRUPTCY IMMEDIATELY STOPS: Debtors get much needed 'breathing room' and discharge or reorganize (chapter 13):
Who Can File Chapter 7 Bankruptcy?
A debtor must reside or have a place of domicile, a place of business, or property in the U.S. and must not have been granted a Chapter 7 discharge within the last 6 years or not have completed a Chapter 13 plan withing the last 6 years, and must not have had a bankruptcy filing dismissed for cause within the last 180 days (6 months).
Do I have to be delinquent on my bills to file chapter 7
NO! Often, debtors who 'see the handwriting' on the wall, file chapter 7 before they are seriously delinquent on their monthly debts. Others may be facing foreclosure, repossession, or even be afraid to answer their own telephone before filing.
Why do consumers file Chapter 7 bankruptcy?
Although you are not required to state a reason or explainwhy you are filing bankruptcy, the most common reasons for consumer bankrupcy are often beyond the control of the individual debtor:
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What is the purpose of federal bankruptcy?
Federal bankruptcy law is premised on the very basic policy that the honest debtor who is in debt beyond his or her ability to repay their debts should be given a second chance, a financial 'fresh start', through the discharge of debts in a bankruptcy proceeding.
Will filing bankruptcy stop creditors from calling?
YES! One of the major and most immediate benefits of filing bankruptcy is the protection of the automatic stay that goes into effect once a bankruptcy is filed to protect the debtor and his or her property. The automatic stay, stays or stops all creditor actions to collect a debt, including phone calls and foreclosures.
How long after filing do creditors quit calling?
Once bankruptcy is filed, the bankruptcy clerk sends a notice to all of the listed creditors. It usually takes about 2 weeks from the date of filing before creditors are 'officially' notified by the court. A debtor can notify creditors immediately after filing. Creditors who continue to collect a debt after being notified of a bankruptcy filing may be liable for sanctions by the court and attorney fees for their conduct.
Will my employer find out I filed for bankruptcy?
Unless the employer is also a creditor, generally, the employer will not know an employee has filed for bankruptcy. A debtor's employer is not notified by the court that an employee has filed for banckruptcy.
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Can I be fired for filing bankruptcy?
NO! Federal Bankruptcy law specifically prohibits discrimination based on an employee's filing for protection.
Will I loose my car if I file for bankruptcy?
Because cars depreciate at a rate usually faster than their payoff; the payoff on a car or truck is often as much or more than the vehicle is worth in the market place, and the debtor has no 'equity' interest to exempt.
Even if the car is worth more than is owed on it, (for example, if your car is worth $6,000 and you still owe $4,000 to the lien holder, you have an equity interest in your car of $2,000. Under the federal bankruptcy exemptions, (and most state exemptions), a motor vehicle is exempt up to $2,400 ($4,800 for spouses). Your entire equity interest of $2,000 would be protected, with $400 left over. You would not have to give up your car if you file bankruptcy.
Leased vehicles have no equity and therefore the debtor has no equity interest to exempt.
Bottom Line: If you owe money on a car, or it is leased, you can choose to reaffirm the debt or lease and continue to make the loan or lease payments, keeping your car.
Each state has its own state exemptions that lists the property a debtor keeps when filing bankruptcy. Check your state's exemptions list at our State By State Exemptions web site.
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| Dischargeable Debts | Credit Cards | Tax Relief | Student Loans | Home Loans |
Will I loose my home if I file for bankruptcy?
Homes or 'homesteads' are generally granted greater protection and exempt value than other property because of the value placed on home ownership in America.
In general, if the equity in the house (if any) is exempt and the debtor keeps making the payments, the debtor can keep the house after filing either a chapter 7 or 13 bankruptcy. (See below to determine the debtor's equity interest).
If the debor does have a nonexempt interest in the home, chapter 13 can be used to 'force' the creditor/lender to accept a repayment plan to 'catch up' the delinquent payments and cure the default.
Secured debt survives: While a bankruptcy discharge eliminates the debtor's personal liability for the mortgage, it does not disturb the lien. Meaning the lender still has its rights in the property - including the right to foreclose if you breach the loan agreement. Just filling the bankruptcy does not breach the mortgage; filing to make payments according to the loan agreement is a breach. So, make the payments - keep the house.
If the debtor is delinquent on the loan payments, chapter 13 can be used to 'force' the creditor/lender to accept a repayment plan to 'catch up' the delinquent payments and cure the default over a 3-5 year period). For example: David is $5,000.00 behind in his mortgage payments of $1,000.00 per month. In his chapter 13 repayment plan he proposes to repay the $5,000.00 delinquency over a 36 month period at $138.149 per month in addition to the ongoing current $1,000.00 monthly payment.
As with all property, you must 1st determine your home's value to determine its exemption status. To determine your interest in your home, (your equity), start with the 'forced liquidation' value of your home, not the amount you 'might' be able to sell it for in an optimum selling market. Next deduct the balance you still owe on your home plus the costs of transfering after a sale from the forced liquidation value. The difference is your equity interest in your home.
It is not unusual for a debtor's home to have a mortgage, a home equity loan, and a home improvement loan that are more than the property's value.
Compare your equity in your home to the exemption for real property in your state, or the federal exemptions list if your state gives you a choice of using state or federal exemptions, to determine if all of your equity interest in your home is protected from creditors. ( See Home Loans)
For example: The liquidation value of David's home is $80,000.00. He still owes $60,000 on the mortgage and another $15,000 on a 2nd mortgage for home improvements. David's equity interest in his home is $5,000. The Federal Exemption for homesteads is $15,000 and $30,000 for spouses. Like all other property the exemption applies only your equity interest. Using the Federal Exemptions, David's home is exempt from his creditors in bankruptcy. Texas and Florida exempt homesteads regardless of the debtor's interest in their home.
Check your state's exemptions list at our State By State Exemptions web site.
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Will filing bankruptcy stop foreclosure?
YES! The automatic stay that goes into effect when a debtor files bankruptcy stops foreclosure. Chapter 13 bankruptcy forces mortgage lenders to allow debtors to 'catch up' on delinquent mortgage payments over a typically a 3 - 5 year period, curing the default on the mortgage. ( See the section above Will I loose my home if I file for bankruptcy?)
Yes! (generally) Most civil judgments are dischargeable.
Creditors may file a lawsuit seeking judgment to collect a debt. The law presumes that if a debtor fails to answer a complaint the debtor is essentially 'admitting' the debt. Judgment is generally entered in the amount of the complaint giving the creditor certain collection 'rights'.
Once a judgement is entered by the court, the creditor can get a lien on the debtor's property using the sheriff's office to levy on your bank accounts or garnish the debtor's wages. (Note: property exempt under your state system is not subject to seizure).
YES! Filing bankruptcy will terminate garnishments as to wages earned after the filing of the bankruptcy. (Wages earned before the filing may be recoverable from the sheriff or creditor if those wages would otherwise have been exempt.)
The only possible execption is child support collections.
If a debtor is divorced, does bankruptcy end the debtor's obligation to pay community debts?
YES! A debtor will generally be discharged from all obligation for dischargeable community debts.
Will 'someone' come out and go through my home and property if I file for bankruptcy?
NO! When you sign and file bankruptcy documents, you are making a statement to the court, under oath and under penalty for perjury, that the information you provide in your paperwork is accurate to the best of your knowledge. Bankruptcy law is based on the basic idea that honest debtors deserve a financial fresh start. (You don't even want to know what happens to dishonest debtors). You should always be 100% truthful in completing information in your paperwork.
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Does my spouse have to file Chapter 7 with me?
NO! There is no requirement that both spouses file. It is not unusual for only 1 spouse to have debts.
If you want to keep a credit card through bankrucpty, contact the bank or store before you file.If you offer to reaffirm the debt, some banks or stores may let you keep the credit card. (Reaffirm = sign a statment of intention not to discharge the debt in bankruptcy and continue to make the regular payments.)
What happens to my credit rating after bankruptcy?
A bankruptcy judgment is listed on a debtor's credit report, usually replacing the several pages of creditor information listing the debtor's accounts as 'slow pay', 'no pay', 'delinquent', etc.
Can I get 'new' credit after bankruptcy?
YES! Properly explained, bankruptcy may have little or no effect upon future credit . The stigma onced attached to those that file bankruptcy is all but gone, due in large part to the widely reported bankruptcy filings of celebrities, and even some citiy and county governments.
Existing creditors may continue to grant 'new' credit based on a re-affirmation agreement made during the bankruptcy process. An entire industry of "Secured Credit Cards" has developed primarily to fill the need to re-establish credit following bankruptcy or financial difficulty. An evergrowing number of banks now offer 'secured credit cards' where a debtor simply puts up a certain minimal amount of money (as little as $200) in an account at the bank to guarantee payment of the credit card if the debtor does not pay. Usually the credit limit is equal to the security given and is increased as the debtor proves his or her ability to pay the debt.
Most creditors report that after a 2-3 year period following bankruptcy, the bankruptcy has little effect on the creditor's decision to grant credit.
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If I have a co-signer on a debt, what happens if I file bankruptcy?
If a co-signed debt is discharged in bankruptcy, the co-signer becomes responsible for the debt just as they would if the debtor didn't pay the debt for any other reason. A debtor may choose to re-affirm the debt and continue to make the payments on the co-signed debt just as they did before filing bankruptcy and the co-signer is not affected by the bankruptcy.
A borrower's bankrutpcy options on student loans are almost nill. Changes to the Bankruptcy Code in 1998 made student loans non dischargeable - unless the borrower can establish "substantial hardship" on the debtor/borrower and his family.
"Substantial hardship" has generally been defined to mean that the debtor cannot maintian a minimally adequate standard of living and repay the loan generally requiring a showing by the debtor that there is not likely to be a change in circumstances improving the debtor's ability to repay the debt. (See Student Loans )
Bankruptcy law is federal law, making the filing fee for bankruptcy the same in every state. The filing fee for a chapter 7 is a total of $200 and is paid directly to the bankruptcy court clerk when you mail in your paperwork to the clerk in your area to be filed.
The National Divorce & Bankruptcy Center's fee for processing your information (from your worksheet) and returning to you all of the documents required to file and complete Chapter 7 is $200. (refer to the 'paperwork' section for a detailed list of all included documents).
Do I have to hire a lawyer to file bankruptcy?
NO! The U.S. Congress in the 1994 Bankruptcy Reform Act, authorized non-lawyer Bankruptcy Petition Preparers to assist debtors with the paperwork and routine process of filing bankruptcy. That is exactly what the National Divorce & Bankruptcy Center does - we are bankruptcy petition preparers as defined in the Bankruptcy Reform Act of 1994.
Do I have to go to court?
All debtors are required to attend a hearing called the "First Meeting of the Creidtors". (Despite its name creditor's seldom attend the meeting). The meeting is usually held within 30-40 days after you file, and will take an average of 15-30 minutes. The meeting is presided over by a trustee, without a judge. The trustee generally will ask a debtor questions he or she may have about the information in the debtor's paperwork, for example, if their income has changed since they filed.
The 1994 Bankruptcy Reform Act specifies the following regarding the meeting and its purpose:
"This section requires the U.S. Trustee to orally examine the debtor to ensure that he or she is informed about the effects of bankruptcy.... Its purpose is solely informational; it is not intended to be an interrogation to which the debtor must give any specific answers or which could be used against the debtor in some later proceeding. ..."
"The trustee conducting the meeting of the creditors is directed to orally inquire whether the debtor is aware of the consequences of bankruptcy, including protections such as those provided by the discharge and the automatic stay, as well as the fact that bankruptcy will appear on the debtor's credit history."
How long does it take for a chapter 7 to be 'final'?
Typically, the Bankruptcy Court will automatically issue a discharge of debts apporximately 60-75 days after the First Meeting of the Creditors which is usually 30-40 days after filing. The entire process from the date of filing to final discharge is normally 90-120 days.
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