Bankruptcy FAQs For St. Louis & Illinois

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Bankruptcy FAQs for St. Louis & Illinois

Dealing with debt can be unbearable at times. It’s stressful enough trying to manage overwhelming debt, but trying to remedy problems without fully understanding all of your options only makes matters worse. If you’re considering bankruptcy as a solution to your debt crisis you likely have questions. Learn more about bankruptcy and how it can help you with our answers to the most frequently asked bankruptcy questions.

Bankruptcy Basics

What is bankruptcy?

Bankruptcy is a federal court procedure put in place to help consumers and businesses manage their debts. Bankruptcy can be categorized into liquidations and reorganizations. The process can help individuals or organizations repay some or all of their debts.

How can bankruptcy help me?

Bankruptcy is meant to help honest individuals overwhelmed with debt and there are many advantages to filing for bankruptcy. A bankruptcy essentially creates a fresh start for debtors and can help individuals:

  • Protect property such as cars and houses from repossession or foreclosure.
  • Stop wage garnishments.
  • Prevent termination of utility services.
  • Legally challenge creditors trying to collect more than you owe.
  • Remove obligations to pay dischargeable debts.
  • Start rebuilding credit immediately after filing.

While bankruptcy cannot cure every financial problem you may possess, it does offer many benefits for those who are struggling financially.

Who is a debtor?

A debtor is a person or institution that owes money to another person or institution. A debtor has a legal obligation to pay the debt that they owe. In the context of bankruptcy, it is the debtor that files for bankruptcy.

Who is a creditor?

While a debtor is an individual or institution that owes money, a creditor is an individual or institution that is owed money.

What is the purpose of bankruptcy?

There are ultimately two main purposes of bankruptcy. The first purpose is to provide a fresh start for honest individuals with overwhelming debt. As long as the bankruptcy code rules are followed, many of your debts can be canceled through discharge. The second purpose of bankruptcy is to extend equal treatment to creditors. The bankruptcy process allows creditors to receive a portion of what they are owed depending on what the debtor can pay.

What are the different types of bankruptcy?

Altogether, there are 5 different types of bankruptcy. The chapter of bankruptcy are as follows:

  1. Chapter 7 (Liquidation)
  2. Chapter 9 (For municipalities)
  3. Chapter 11 (Reorganization)
  4. Chapter 12 (Re-payment plan for farmers and fishermen)
  5. Chapter 13 (Re-payment plan for individuals)

Chapters 7 and 13 are the most common types of bankruptcies for consumers. Occasionally, an individual with a large number of assets and liabilities will file for Chapter 11. Chapters 7 and 13 are discussed in further detail below.

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 and Chapter 13 bankruptcies have many differences, but the main difference is that Chapter 7 is considered a liquidation bankruptcy, while Chapter 13 is considered a reorganization bankruptcy. Should you decide to file for Chapter 7, you’ll be relieved from paying general, unsecured debt. The drawback is that the bankruptcy trustee will be able to sell a nonexempt property to repay creditors. In a Chapter 13 bankruptcy, you will have to pay a portion of your debts through a repayment plan. Unlike Chapter 7, you can keep all of your property, you can remove unsecured junior liens on your property, and you can reduce the principal loan balance on secured debts. Ultimately, which chapter you file will depend on your financial situation and your needs.

Does the type of bankruptcy make a difference for your credit?

According to the most prestigious credit scoring company in the US, FICO, the type of bankruptcy you file does not make a difference on your credit score. That being said, it is possible that a creditor may view a Chapter 13 bankruptcy more favorable than a Chapter 7 bankruptcy.

Do I get to choose which type of bankruptcy I want to file?

Assuming you meet the eligibility requirements for both Chapter 7 and Chapter 13, then you may choose which type of bankruptcy you wish to follow. Those who do not meet the requirements for a specific chapter may not have a choice. See here for eligibility requirements.

Can I switch bankruptcy types after filing?

Yes, you can convert to a different chapter after filing for bankruptcy if your financial situation changes. However, in order to convert to a different chapter, you must be eligible to file for that chapter. Judges will likely approve a single conversion request but are less likely to approve multiple conversion requests.

Can I file for bankruptcy more than once?

You can file for bankruptcy more than once, but there is a time limit on the discharges you can receive. The time limit depends on which type of bankruptcy you have filed in the past and which type of bankruptcy you are looking to file now. If you file for Chapter 7, you must wait at least eight years before receiving another Chapter 7 discharge. Alternatively, you are eligible for a Chapter 13 discharge four years after filing for Chapter 7. On the other hand, if you file for Chapter 13, there is a two-year time limit before you can receive another Chapter 13 discharge. You are eligible to receive a Chapter 7 discharge six years after filing for Chapter 13.

What is bankruptcy fraud?

Bankruptcy fraud is an abuse of the debt relief system. Fraud typically appears in four forms.

  1. A debtor hides assets to avoid having to forfeit them.
  2. A debtor bribes a court trustee for a more favorable result.
  3. A debtor files false or incomplete court forms in the bankruptcy process.
  4. A debtor files for bankruptcy multiple times by filling in several jurisdictions or using false information.

An overwhelming majority of bankruptcy fraud cases involve concealed assets. Therefore, it’s imperative that you disclose all of your assets to your attorney. The penalties for bankruptcy fraud could include up to five years in prison, or a fine of up to $250,000.

What is a bankruptcy estate?

The bankruptcy estate is a collection of assets in a bankruptcy case that is subject to exclusive control by the bankruptcy court. Almost all of the property you own can be included in your bankruptcy estate, but there are certain exemptions that you may claim.

What are bankruptcy schedules?

Bankruptcy schedules are a series of documents every debtor has to prepare and file for bankruptcy. The schedules include a list of all of your property, your income, your monthly expenses, the exemptions you’d like to claim, all of the creditors you owe debt to, any co-debtors that may be involved, and more.

Is there a qualification process for bankruptcy? How do I know if I’m eligible?

Eligibility requirements for bankruptcy differ depending on the type of bankruptcy you wish to file. If you can afford to pay creditors you will not be eligible for a Chapter 7 bankruptcy. Your ability to pay creditors is determined by the means test. To be eligible for a Chapter 13 bankruptcy you must have a steady income with secured debts that do not exceed $1,184,200 in value and unsecured debts that do not exceed $394,725 in value.

What is the means test?

The means test is an assessment used in bankruptcy cases to determine if an individual’s income is low enough to file for Chapter 7. The means test was developed to prevent the abuse of Chapter 7 filings. Only those who truly can’t pay their debts should be filing for Chapter 7 bankruptcy. The test assesses eligibility by subtracting specific monthly expenses from your average income over a six-month span. The higher the result is, the less likely you are to be awarded a Chapter 7 filing.

Can I file for bankruptcy if my income is above state average?

Yes, you can file for bankruptcy, but you may not eligible to file for a Chapter 7 bankruptcy. If your income is above the state average, you must pass the means test to determine if you can file for Chapter 7.

Are there debt limits for filing?

There is no minimum debt requirement for you to be able to file for bankruptcy. Similarly, there is no maximum debt rule for Chapter 7. On the other hand, there is a debt ceiling placed on Chapter 13 bankruptcies. To file for Chapter 13 you cannot possess more than $1,184,200 in secured debt or $394,725 in unsecured debt.

Can I file for bankruptcy with no income?

You can file for bankruptcy without a source of income. In fact, your odds of qualifying for a Chapter 7 bankruptcy without a source of income are much better. However, you will likely not be able to file for a Chapter 13 bankruptcy. If you can’t prove that have the funds to keep up with a payment plan, your Chapter 13 case will be dismissed by the court.

What is the 341 meeting of creditors?

The meeting of creditors, also known as the 341 hearing (due to the fact that the meeting is required by section 341 of the bankruptcy code), is a meeting with the bankruptcy trustee assigned to your case. While creditors are invited to attend the meeting, it’s rare that any do. The goal of the meeting is to ensure that your income is properly reported and all of your assets are accounted for so that creditors can be paid to the full extent of your available estate. The trustee will ask you a series of questions, which typically include:

  1. How did you assess the value for large assets like your home or your car?
  2. Have you transferred property within the last year?
  3. Do you have any pending claims against anyone because of a recent accident?
  4. Have you made any large payments to creditors or relatives recently?
  5. Do you anticipate you’ll receive a tax refund this year?
  6. Is anyone currently holding property that you own?
  7. Will you be receiving an inheritance or a life insurance payout in the near future?
  8. Does anyone owe you money?

The meeting is extremely brief and will typically last 5 to 10 minutes. You are still under oath despite the fact that the meeting is held in a meeting room. Therefore, it’s important to answer all questions truthfully to the best of your knowledge.

What does a bankruptcy trustee do?

A bankruptcy trustee is a legal professional appointed by the court. The role of a bankruptcy trustee is to ensure that creditors are being paid fairly based on the amount of money you are able to provide from your bankruptcy estate. A bankruptcy trustee will question you during the meeting of creditors to investigate whether or not your income is accurate and all assets are accounted for.

Do I need an attorney to file for bankruptcy?

Individuals can file for bankruptcy without an attorney. Filing for bankruptcy without legal assistance is also known as filing pro se. However, it is ill-advised to file without the assistance of an attorney. Bankruptcy can have long-term financial and legal consequences, which should not be taken lightly. It’s extremely beneficial to work with a qualified bankruptcy attorney who can help you decide which chapter to file, advise whether or not you should file a bankruptcy petition, help you determine which debts can be discharged, complete and file court forms, help you decide whether or not you should continue to pay certain creditors, and more. Individuals filing pro se often make mistakes filing for the wrong chapter, choosing incorrect property exemptions, and failing to file required documents. These mistakes can ultimately be costly and are best avoided by obtaining legal aid.

Bankruptcy Procedures

What needs to be done before I file for bankruptcy?

The most important thing to do before filing for bankruptcy is to consider whether bankruptcy is the right option for you. A knowledgeable bankruptcy attorney can help you examine your financial situation and determine whether bankruptcy makes sense. Once you’ve decided to file for bankruptcy, bankruptcy code requires that you receive credit counseling before applying. If you are working with a bankruptcy attorney, the attorney will be able to help you complete this requirement.

Do I need a credit report before filing?

A credit report is a statement that provides a history of your credit activity. In a bankruptcy case it’s important to acknowledge all of the creditors you owe money to because if a creditor is not listed in your petition, they can still pursue you for debt. Thus, it’s highly recommended that you obtain a credit report from all three of the major credit bureaus (Experian, Equifax, and TransUnion) before you file for bankruptcy. You want to be as thorough as possible going into the process because a creditor can still collect from you if the debt is not reported on your credit report.

What happens if my credit report is inaccurate?

It is a huge issue if your credit report does not accurately reflect all of the creditors you owe debt to and the amount you owe. Afterall, if a debt is not reported on your credit report, creditors will still have the right to collect from you. If your report appears to be inaccurate, the best course of action would be to notify both the creditor and the credit reporting agency. If you can’t get your report changed, you may have legal recourse under the Fair Credit Reporting Act.

What activities should I avoid before filing for bankruptcy?

There are several different activities you should avoid to prevent your case from being dismissed. The biggest mistakes debtors often make include:

  • Making efforts to conceal or hide assets.
  • Excessively using credit cards for purchases, balance transfers, and cash advances.
  • Paying off loans to friends or relatives.
  • Transferring or selling assets you’re worried about losing in a bankruptcy.

Avoiding these activities will help ensure that your case runs smoothly without a hitch.

What documents are required to file for bankruptcy?

Required documentation for filing may differ slightly from district to district, but you will generally need to obtain and produce the following documents:

  • Tax returns for the previous two years
  • Proof of income via pay stubs, W-2s, a profit and loss statement, or some other form of documentation for SS benefits, disability payments, and rental property income.
  • An assessment of real estate property you own along with mortgage statements, deeds of trust, and proof of home insurance.
  • Vehicle registration, proof of insurance, and valuation information for any vehicles you own.
  • Recent bank and retirement account statements.
  • Valid photo identification.
  • Proof of your social security number.
  • Proof of support expenses if you are paying alimony or child support.

Will I have to go to court?

At a minimum, you will be required to attend the meeting of creditors, but the meeting of creditors is typically held in a meeting room rather than a courtroom. In certain circumstances, you will have to go to court. Some bankruptcy courts require debtors to attend confirmation hearings in Chapter 13 cases. The hearings are formalities to confirm a payment plan. If a creditor objects to a discharge, a debtor may also have to attend an adversarial hearing. It’s extremely rare for a bankruptcy case to involve an adversarial hearing.

Who informs creditors that I’ve filed for bankruptcy?

When you file for bankruptcy, you will have to fill out a bankruptcy schedule containing all of the names and addresses of your creditors. Once your case is filed, the court will mail a notice to all of the creditors listed in the bankruptcy schedule.

What is the debtor education requirement?

A debtor education course is required after filing for bankruptcy. The courses are typically two hours in length and cover basic personal finance concepts from maintaining a budget to successfully managing use of credit.

How long does it take to file for bankruptcy?

The duration of a bankruptcy filing is dependent on the chapter you wish to file. It typically takes three to four months to file for a Chapter 7 bankruptcy. Chapter 13 bankruptcies involve a repayment plan which can last anywhere from three to five years.

When should I stop using my credit cards if I want to file?

Ideally, you should stop using your credit cards immediately after you decide to file for bankruptcy. You are allowed to make necessary purchases on credit, but it’s best to avoid using credit entirely to prevent being accused of actual or presumptive bankruptcy fraud. Once it’s realized you can’t afford purchases bought on credit or don’t intend to pay the bill, you expose yourself to accusations of fraud. Furthermore, if luxury goods totaling $675 or more are purchased using a credit card within 90 days prior to filing, those charges will not be dischargeable.

Do I need to produce tax returns during my bankruptcy?

Yes, any tax returns filed during the duration of the bankruptcy case must also be submitted to the bankruptcy court.

Bankruptcy Considerations

What are the consequences of filing for bankruptcy?

Filing for bankruptcy does have serious implications. A bankruptcy will remain on your credit score seven to ten years depending on which chapter you file. Those with good credit scores can also expect their scores to drop at least 100 points. However, bankruptcy will not have much of an impact on those with bad credit. Additionally, bankruptcy will hamper your ability to earn credit moving forward. It’s important that you speak with a qualified bankruptcy attorney before filing for bankruptcy to determine if the advantages of bankruptcy outweigh the consequences in your case.

Does filing cause hiring discrimination?

Under federal law, no federal, state or local government agency can use your bankruptcy against you when making hiring decisions. On the other hand, nothing prevents private institutions from discriminating against you on the basis of your bankruptcy filing. In fact, a bankruptcy may prevent you from working in positions that manage money, such as roles in the fields of accounting or finance.

Can I be fired if I file for bankruptcy?

No, employers are not permitted to fire you on the grounds of filing for bankruptcy. Additionally, employers cannot discriminate against you in other terms and conditions of employment. This means that an employer cannot demote you, reduce your salary, or take away responsibilities because of your bankruptcy.

Can I be evicted from my apartment if I file for bankruptcy?

The automatic stay prevents landlords from evicting tenants during a bankruptcy. In a Chapter 13 case, the bankruptcy trustee may require you to terminate your lease if he/she believes that your rent payments are above the average rate in that area. The purpose of terminating a lease would be to free up additional cash to repay creditors. While an automatic stay will protect you during bankruptcy, you can be evicted if you fail to pay rent after your bankruptcy.

Will bankruptcy affect my utility services?

The automatic stay prevents utility companies from ending services during your bankruptcy. Furthermore, utility companies cannot terminate services solely, because you have filed for bankruptcy. However, you will be responsible for paying new utility bills after your bankruptcy and if you are unable to pay those bills, then your services can be terminated.

Will a personal bankruptcy affect my business?

A personal bankruptcy may have an effect on ownership interest in a small business. If the business is a sole proprietorship, it can be considered part of the bankruptcy estate. A corporation or LLC may be affected in a Chapter 7 filing if the business has a net positive value and can be sold as an asset of the debtor. In a Chapter 13 case, the business will virtually be unaffected.

Can bankruptcy affect my professional license (CPA, Insurance License,etc.)?

No, a bankruptcy will have no effect on your professional license. It could, however, affect your employability if you work in a profession that deals with managing money.

Can a credit repair company help you avoid bankruptcy?

Credit repair companies claim to be able to raise low credit scores so borrowers can receive better interest rates. While this may be the case, a credit repair company will not be able to help you eliminate debt and a better interest rate likely won’t do much to fix your financial situation. Furthermore, bankruptcy isn’t something you should necessarily be looking to avoid. In many cases, bankruptcy is the best option. It can provide debtors with a fresh start so they can begin rebuilding credit as fast as possible.

Can filing for bankruptcy stop a civil lawsuit?

If a creditor is suing you to collect a debt, bankruptcy can stop your civil lawsuit through automatic stay provisions. The automatic stay will not protect you from a divorce lawsuit, but it will protect you from property division if the property is part of the bankruptcy estate.

Will my filing be on public record?

Filing for a bankruptcy case does end up on public record, but it is not easy information for the general public to obtain. Bankruptcy filing information can be obtained only through the government court records available via PACER. In order to access information on PACER, you must register and pay per page of each document obtained. These measures typically prevent a member of the general public from discovering your bankruptcy. However, lenders and creditors will often access this information when you submit an application.

Debt

What is a bankruptcy discharge?

Bankruptcy discharge relieves a debtor of the legal obligation to pay specified types of debt. Once a debt is discharged, an individual will no longer be responsible for paying it.

Will all my debts be discharged?

No, only certain types of debt can be discharged in a bankruptcy. Dischargeable debt varies depending on the chapter of bankruptcy.

How would a Chapter 13 plan help me with secured debt?

In a chapter 13 plan, your mortgage must be paid in full. A Chapter 13 plan allows you to make up for payments in arrears and may also allow you to strip off junior liens to reduce your mortgage payments. For secured debts other than mortgages, it’s possible to receive a lower interest rate. If the debt is over 910 old you may be able to reduce the amount owed using the 910-day cramdown rule.

What is the 910-day cramdown rule?

The 910-day cramdown rule applies to Chapter 13 bankruptcies. If you’re paying a loan on property purchased at least 910 days before filing for bankruptcy, you can reduce the balance of your secured debt down to the current value of the property. Chapter 13 cramdowns typically apply to investment property mortgages and car loans. You cannot apply a cramdown on your principle place of residence.

What is the difference between secured debt and unsecured debt?

Simply put, unsecured debt is debt without collateral. Conversely, secured debt is tied to an asset, which creditors have the right to seize if payments are not made. In the context of bankruptcy, a majority of unsecured debt is dischargeable, while most secured debt is not.

Can bankruptcy eliminate student loans?

You’ve likely heard that student loans cannot be eliminated in a bankruptcy and in most cases this is true. However, you can discharge student loans by proving that repaying your loans would cause undue hardship. The tests used to prove undue hardship vary between courts, but most courts are extremely reluctant to discharge student debt. Nevertheless, it is possible.

Can bankruptcy eliminate tax debt?

You cannot discharge tax debt in a Chapter 13 case, but you can discharge tax debt under certain circumstances in a Chapter 7 case. More specifically, you can eliminate tax debt if the taxes are income taxes, no tax fraud was committed, the debt is at least three years old, you filed a return, and you pass the 240-day rule. The 240-day rule states that the tax debt must be assessed by the IRS at least 240 days prior to filing.

Can court fines and restitutions be discharged?

Restitution cannot be discharged under any circumstances, but fines can be in certain circumstances. The dischargeability of a fine is largely dependent on whether the intent of the fine is to punish you or compensate the government. If the fine is a punishment for wrongdoing, then it cannot be discharged. On the other hand, if the fine is designed to pay the government for monetary loss, then it can be eliminated. Bail bond forfeitures and income tax penalties over three years old are generally dischargeable. Furthermore, Chapter 13 allows for greater flexibility with fine discharges. Traffic violations, toll charges, building code violations, and parking tickets may all be discharged in a Chapter 13 case.

Can bankruptcy clear debt owed to the Social Security Administration?

Social Security debt is created when the government accidentally pays you more retirement or disability benefits than you are entitled to. Luckily, if you owe a debt to the Social Security Administration, it can be discharged in bankruptcy.

When does discharge occur?

The date when discharge occurs differs by chapter. In a Chapter 7 case, discharge occurs when the time limit for filing an objection to discharge expires. In other words, discharge occurs 60 days after the meeting of creditors. In a Chapter 13 case, discharge occurs after the debtor completes the payment plan. Payment plans typically run three to five years in length, so the average discharge occurs roughly four years after filing.

Can creditors object to a discharge?

Upon filing for bankruptcy, all creditors are notified of your case and all creditors have 60 days from the 341 hearing to object to a discharge. Objections to a discharge are normally granted for the following reasons:

  • You committed bankruptcy fraud.
  • You bought luxury items on credit of over $675 within 90 days of filing for bankruptcy.
  • You obtained debt through fraud.
  • You used a credit card to pay a nondischargeable debt.
  • You took out a cash advance of over $950 within 70 days of filing for bankruptcy.

In most cases, if a creditor objects to your discharge only that debt is removed from discharge. However, if evidence exists that you’ve committed bankruptcy fraud or abused the bankruptcy system, all of your discharged debt will be denied.

Can a discharge be revoked?

Yes, a discharge can be revoked by the bankruptcy trustee if they have evidence that you have committed bankruptcy fraud. Trustees can only request a revoke within a year of discharge or the case is closed permanently.

Will the cosigner of a loan still be responsible for paying after bankruptcy?

A cosigner of a loan may be held responsible for paying your debt depending on which chapter of bankruptcy you file. If you file Chapter 7, the automatic stay prevents creditors from trying to collect a debt from you, but it allows them to pursue your cosigner for repayment. If you file for a Chapter 13 bankruptcy, your cosigner will not be pursued, assuming you successfully complete your payment plan.

Do I need to list all creditors in my bankruptcy schedule?

Yes, it is imperative that you list all of your creditors on your bankruptcy schedule. One of the goals of bankruptcy is to ensure that all creditors receive fair treatment. For this to be possible, all creditors need to be listed and notified of your bankruptcy so that they can receive their fair share of the money. You might desire to omit a creditor to be able to repay them in full, but this would be a violation of the law. You need to list all of your creditors to avoid having your case dismissed.

What happens if I forgot to list a creditor in the bankruptcy schedules?

An omission of a creditor from the bankruptcy schedule could result in case dismissal, even if the omission was accidental. If you forgot to list a creditor in your bankruptcy schedule, you should notify your attorney immediately with all of the necessary information on the creditor so that the schedule can be completed correctly.

Can a creditor demand payment of a debt after I file my case?

If a creditor tries to collect after an automatic stay is initiated, then they are in violation of the law. If a situation arises where a creditor is demanding payment after you have filed for bankruptcy, you should provide the creditor’s name and telephone number to your attorney. Courts may punish creditors who intentionally violate an automatic stay.

What is a reaffirmation agreement?

If you have debt secured by property, you can keep the property by reaffirming the debt in a Chapter 7 case. In a reaffirmation agreement, you agree to repay the debt even after the bankruptcy is over. Generally, you can only reaffirm the debt if your property in the collateral is exempt from your bankruptcy estate.

Can I make payments on discharged debt without a reaffirmation agreement?

Yes, you can voluntarily decide to repay discharged debt without a reaffirmation agreement. Debtors will typically voluntarily repay debts owed to family and friends.

Should I reaffirm any debt to build credit after bankruptcy?

Creditors will often approach debtors with reaffirmation agreements for a chance to re-establish credit. However, you do not need to reaffirm debt to start building credit and it is not advised to do so. You typically only want to consider reaffirming credit if your property is on the line.

Assets

Which bankruptcy option will allow me to keep my property?

While you will only get to keep exempt property in a Chapter 7 filing, you typically get to keep all of your property in a Chapter 13 bankruptcy.

What property will I get to keep after filing?

Certain property is exempt from your bankruptcy estate, which will allow you to keep it after filing. Exempt property differs from state to state, but generally includes clothes, household goods, tools for your trade, and a car up to a limited value in a Chapter 7 bankruptcy. Those who file for Chapter 13 typically get to keep all of their property.

How does the automatic stay stop foreclosures, repossessions, and other collection efforts from occurring?

Filing a bankruptcy petition immediately places an automatic stay against all collection efforts. This means that creditors will not be able to pursue you for debts. It also means that home foreclosures, repossessions, and sales of property will halt. However, it’s important to note that if you don’t begin to start making house payments, creditors can continue with your home foreclosure after the bankruptcy. Thus, an automatic stay is only temporary in the case of secured debt.

Does filing for bankruptcy automatically remove liens against my property?

No, a bankruptcy can temporarily delay secured creditors, but most voluntary liens ultimately have to be satisfied by either paying the creditor or surrendering the property. In a chapter 7 case, you can remove involuntary liens (with the exception of alimony and child support) and any voluntary liens surrounding exempt property. Chapter 13 generally allows for more flexibility when it comes to lien removal.

Does an automatic stay protect money I have in the bank?

While an automatic stay does protect creditors from pursuing you for payment, it may not necessarily protect the money in your bank account. Most ordinary bank accounts are exempt from the bankruptcy estate, but it is possible for the bankruptcy trustee to seize that money. Furthermore, if you owe money to the bank that manages your account, they may put a freeze on your account. It’s also worth noting that filing for bankruptcy does not necessarily automatically stop authorized automatic payments. If you have automatic payments set up for a service, you should ensure you disable those payments yourself.

What happens to my inheritance?

An inheritance is considered part of your bankruptcy estate and is subject to loss. Even if you receive an inheritance after you file for bankruptcy, you are required to give the bankruptcy trustee any inheritance you receive within 180 days of filing.

Will I lose my retirement account or social security after filing?

For the most part, your 401(k) plan and other qualified retirement accounts are protected in bankruptcy. Social Security benefits are also generally exempt unless you’ve commingled your benefit payout with non-Social Security funds. If funds are mingled together, a trustee could argue that there’s no way of determining the money that originates from Social Security. Ultimately commingling funds could put your Social Security benefits at risk.

Can filing stop wage garnishments?

Yes, you can stop wage garnishments by filing for Chapter 7 bankruptcy. Once you file, the automatic stay will immediately protect you from creditors. The stay prevents any type of creditor collection activity during your case.

Marriage

What is a joint bankruptcy petition?

A joint bankruptcy petition is a single petition filed by both an individual and the individual’s spouse. If you and your spouse both have debts you’d like discharged, filing jointly will likely save you time and money. Joint filing can wipe out all dischargeable debts owed by you and your spouse for the same fee as an individual filing.

Do married couples need to file for bankruptcy together?

No, married couples do not need to file for bankruptcy together. However, it may be in your best interest to file jointly depending on the amount of joint debt you possess, and the amount of property you own. It’s in your best interest to speak to a qualified bankruptcy attorney before filing to determine whether filing individually or jointly would be more beneficial for you.

What happens if my spouse files for bankruptcy?

Should your spouse file for bankruptcy, there will be no effect on your credit score. Additionally, any property that you own will be safe from sale to satisfy debts. If you and your spouse share debt, that debt will become your responsibility entirely. In situations where you and your spouse share a large quantity of joint debt, it’s advised that you file for bankruptcy jointly rather than individually.

Should I file for bankruptcy after or before a divorce?

Often financial and marriage issues go hand in hand. If you need to file for both bankruptcy and divorce, it’s best to file for bankruptcy first. By filing for bankruptcy first you can file jointly, which will save you more time and money as opposed to filing separately.

Does bankruptcy relieve you from paying alimony/child support?

No, alimony and child support are considered non-dischargeable debts and generally cannot be removed in a bankruptcy. There are specific circumstances that will allow for removal of alimony, but it is rare that alimony is ever discharged.

After Filing

Are there any other requirements to discharge debt after a Chapter 7 or Chapter 13 case is completed?

Once a case is completed you must attend a debtor education course to receive your discharge. If you owe domestic support obligations in a Chapter 13 case such as alimony or child support, you must also verify with the courts that you have paid off all amounts due.

What happens after filing bankruptcy?

If you’ve filed for Chapter 7 bankruptcy, your dischargeable debt will be discharged 60 days after the meeting of creditors. You will also be required to take a debtor education course. Your credit score will likely be low, but chances are it was low before bankruptcy as well. With a chunk of unsecured debt wiped away, you will be able to focus on paying your secured debts so that you can start rebuilding your credit as fast as possible. After a chapter 13 bankruptcy is filed, you will begin making payments as outlined by your payment plan. Once your plan is finished, your dischargeable debt will be discharged.

What happens if I fall behind on payments in a Chapter 13 plan?

The payment plan that you agreed upon during a Chapter 13 plan is legally binding. If you find yourself falling behind on payments you should immediately consult an attorney. It is possible to amend the payment plan to deal with a change in financial circumstances. You may also be able to incorporate new debt into your plan so it can be discharged.

Can you apply for student loans after bankruptcy?

Yes, you can apply for student loans after bankruptcy, but whether you receive them depends on the type of loan you’re applying for. Federal PLUS loans and private loans take your credit score into consideration. With a bankruptcy on your credit score, it is less likely that you’ll be able to receive a loan. On the other hand, federal student loans that aren’t PLUS loans do not consider creditworthiness in determining eligibility. Therefore, you can still receive federal financial aid if you meet eligibility requirements.

Can I apply for a new credit card after I have filed?

You can apply for a new credit card immediately after bankruptcy, but the likelihood of being approved for a card is rather low. The bankruptcy listed on your credit report may leave card issuers reluctant to approve you for a standard card. Nevertheless, you’re almost guaranteed approval for a secured card. Secured cards require a refundable security deposit, but work almost identical to a standard card after the security deposit is made. MasterCard, Visa, American Express, and Capital One all offer secured cards.

Is credit counseling required after filing?

No, credit counseling is required before a bankruptcy petition is filed and is not required again after filing. However, debtor education is required after filing. Debtor education courses are about 2 hours in length and cover basic personal finance concepts including maintenance of a budget, effective use of credit, and the proper way to deal with unexpected financial crises.

How can I rebuild credit after bankruptcy?

The important aspects of rebuilding credit after bankruptcy revolve around sticking to a healthy financial budget and making consistent credit payments. The first thing you should do after bankruptcy is create a budget that works for you. Start with the amount you make every month and subtract the expenses for your necessities. Subtract another 5-10% of your earnings for savings and the remainder is what you have left to spend on anything that isn’t a necessity. After you have your budget figured out, you’ll want to apply for a secured credit card. Making regular payments on a secured card will allow you to slowly rebuild your credit.

How long will a bankruptcy stay on my record?

How long a bankruptcy will stay on your credit report depends on the chapter. Chapter 7 bankruptcies will remain on your report for ten years and Chapter 13 bankruptcies will stay on your report for seven years.

Are bankruptcy fees tax deductible?

Bankruptcy fees are not tax deductible. In this case, the legal advice you receive is related to a personal matter that does not produce taxable income. Therefore, you cannot deduct these fees.

Can my bankruptcy case be reopened?

Once a bankruptcy case closes it’s typically closed for good, but the court may reopen a case if a request is made with good reason. The court may decide to reopen a bankruptcy case if the court feels the need to give additional relief to the debtor or the debtor possesses additional assets the court needs to administer.

Other

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