Bankruptcy is a legal process that allows individuals or businesses (debtors) who owe others (creditors) more money than they are able to pay to either work out a plan to repay the money over time or completely eliminate (discharge) most of the bills.
Secured debt is a claim that’s secured by some type of property, either by an agreement or involuntarily with a court judgment or taxes. Creditors can generally claim the property (and take it to pay off the debt ) in the event of bankruptcy. Unsecured debt is not tied to any type of property, and the creditor can’t claim it if you file for bankruptcy. A mortgage is a secured debt on you property.
Consumers typically file Chapter 13 bankruptcy, where repayment is made to creditors, or Chapter 7 where the debts are retired, generally without any repayment. The chapter under which one files will determine:
o What bills can be eliminated
o How long payments can be stretched out
o What possessions one can keep
o Many other considerations
The type depends on your circumstances and if you have assets or income available to repay all or part of the your debts. Bankruptcy laws can be tricky and involved, so determining if and when one should file bankruptcy and which type of bankruptcy should be made with counsel of a bankruptcy lawyer.
With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition. Citizenship is not a requirement.
Filing bankruptcy can adversely affect your ability to obtain future credit, rent housing and even negatively impact a job application. Any decision to file must be carefully considered.
o Chapter 7 – can be filed every 8 years from a previous Chapter 7 filing, or 6 years from a prior Chapter 13 filing.
o Chapter 13 – ANYTIME, although discharge in granted only in cases where the case is filed 4 years from a prior Chapter 7 filing, or 2 years from a prior Chapter 13 filing.
Compile the following information, and contact a bankruptcy attorney to discuss your options:
• Amount of debts, by categories of debt (e.g. credit cards)
• List of any very valuable assets (generally more than $1,000 in value)
• Calculation of average current monthly income
• List of monthy living expenses.
No. If you are unable to pay your debts as they come due, bankruptcy is probably worth considering regardless of how much debt you owe.
A joint petition is when an individual and a spouse file a single petition. Unmarried partners must file separate cases.
The non-filing spouse will still be liable for debts he or she owes. In a community property state, such as Washington, this will probably entail all or almost all debts EACH SPOUSE incurred while they were married and living together.
No. A divorce decree is an agreement or order between the two divorcing parties. In regard to debts, it spells out who is ultimately responsible for each debt. However, if both parties are responsible before divorce, the creditors can still go after either or both parties. The divorce decree would allow a party who had to pay a debt for which the other was responsible the right to recover payment.
• So, if a divorce decree provided that H must pay Y, where both spouses are indebted to y, Y can still sue W and presumably win. W would then have the right to sue H to recover what she paid to Y.
• And, consider that in a community property state such as Washington, most debts incurred by either spouse during marriage while living together make both spouses liable.
Yes. The lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. This makes it extremely important when considering co-signing a loan: Be ready, and able, to pay the loan in the event that the principal signor defaults.
No. The debts that can’t be discharged vary slightly between the different chapters of bankruptcy. Generally, the following cannot be discharged:
o Debts for taxes owed to local, state or federal agencies (but there are important exceptions to this!)
o Debts for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained fraudulently
o Debts that weren’t in the initial list of debts or that the debtor waived being cancelled
o Debts owed to a spouse, former spouse, or child, for alimony, maintenance, or support of a spouse or child, with a separation agreement, divorce decree or other order of a court of record
o Debts owed for injury to another person or property owned by another (as in a court judgment)
o Debts for any educational loans, unless it can be shown that repayment will cause an undue hardship
o Debts for death or personal injury caused by the debtor’s drunk driving or from driving while under the influence of drugs or other substances (as in a court judgment)
o Debts incurred after a bankruptcy was filed
o Any type of criminal fine or restitution
Exemptions allow an individual to “exempt”, or keep, certain kinds of property. State law defines what assets are considered “exempt,” but typically include:
o Vehicles up to a certain amount
o Equity in a home up to a certain amount
o “Tools of the trade” or tools and equipment necessary to allow the individual to continue working
You must include all the debts you owe in your petition and schedules. You cannot pick-and-choose whom you list. However, you may be allowed to keep certain debts, such as car loans.
Generally, no. Retirement accounts that are ERISA-qualified aren’t considered property of an estate and aren’t taken into consideration as assets. Social Security benefits are protected from assignment, or garnishment for debts in bankruptcy.
There are many factors that impact the ability to keep your home, including:
o The equity you have in your home (value exceeding liens)
o The status of your mortgages (current or in foreclosure)
o The type of bankruptcy you’re filing
If one’s “record” means on his credit reports: Chapter 7 bankruptcies remain on credit reports for 10 years, whereas Chapter 13 bankruptcies generally remain for 7 years.
No, although as a general matter, rebuilding credit diligently after filing will render the bankruptcy less relevant of a negative factor in one’s credit score.
The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor. That stated, one is generally advised to apply to a secured credit card very shortly after receiving discharge from bankruptcy.
The moment a bankruptcy is filed, creditors are required by law to stop all collection efforts against the filer. This is called the “automatic stay.” Although all collection efforts (e.g. phone calls, collection letters) are illegal from that point forward, realistically one should expect phone calls to peter out over the following 2-3 weeks.
The bankruptcy court notifies, by mail, all creditors advising them of:
o The filing of the bankruptcy
o The case number
o The automatic stay
o The name of the trustee assigned to the case (if filed under chapters 7 or 13)
o The date set for the meeting of creditors
o The deadline, if any, set for filing objections to the dismissal of debts
o Whether and where to file claims
The exact information in the notice may be slightly different depending on the chapter under which the case is filed.
The trustee’s job is to:
o Administer the bankruptcy
o Make sure creditors get as much money as possible
o Run the first meeting of creditors (also called the “section 341 meeting”).
o Collect and sell non-exempt property (in a chapter 7 case) or collect and pay out money on a repayment plan (in a chapter 13 case)
o Obtain information from you and documents related to your bankruptcy
Trustees are appointed by the bankruptcy court, but aren’t necessarily lawyers. Their fees are covered by the bankruptcy filing fee or are a set percentage of the money distributed in the bankruptcy.
Once you declare bankruptcy you must attend the creditors’ meeting conducted by the trustee appointed to their case. You must answer questions concerning:
o How the situation evolved
o Any actions taken with the property
o Debts listed in the petition or any other financial information requested by the trustee
Failure answer truthfully can result in the petition being dismissed or, in extreme cases, a charge of perjury. Creditors may attend and question you about the assets or any other matter relevant to the bankruptcy. A creditor doesn’t waive any rights by not attending the creditors’ meeting.
After filing the petition, if you discover that an entry is inaccurate or missing, you may typically file an amendment to correct it. However, filing an the amendment will entail additional fees and costs (filing fee, postage). So, one should try very hard to list all possible creditors for the initial filing.
As soon as you anticipate filing bankruptcy, stop using your credit cards. Bankruptcy law allows the review of questionable purchases for potential fraud. Purchases made and cash advances taken close in time to filing bankruptcy may be suspect for fraud.
• Contrary to what you may have read, there is technically no SAFE HARBOR as far as usage of credit cards go. Even charges preceding a bankruptcy filing by more than 90 days CAN BE EXAMINED for fraud.
Reaffirming a debt is voluntary and isn’t required by bankruptcy codes. You may voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be other reasons for wanting to reaffirm a specific debt, such as a vehicle loan or student loan.
Yes. Typically, a bankruptcy case is reopened by the trustee when questions arise concerning what was included or possibly omitted, or any other irregularities that surface.
A person filing bankruptcy can also reopen a case under certain circumstances.
How an inheritance is treated in bankruptcy depends on when you become entitled to receive it and what type of bankruptcy relief you’re seeking.
Chapter 7 – if you become entitled to an inheritance within 180 days of your filing date, the inheritance will be a part of your bankruptcy estate, and can be used to pay your debts. The important date is when your right to the inheritance is fixed, which is typically on the date of a person’s death. You might not receive property or money from someone’s estate for many months.
Chapter 13 – your inheritance can be used in determining how much you have available to pay creditors under your repayment plan, and the 180-day limit doesn’t apply.
In either type of bankruptcy, you must inform the bankruptcy trustee about the inheritance. If you’re thinking about filing for bankruptcy, ask a bankruptcy lawyer how an expected inheritance might factor into your plans.