Bankruptcy - Frequently Asked Questions

A creditor is threatening to take my wages. Can they do that?

Yes. They can take up to 25% of your take-home pay. Filing bankruptcy can stop the wage assessment and probably wipe out the creditor's claims entirely.

Can a bankruptcy stop creditors from calling me?

Yes. No creditor may contact you in any way after you file your bankruptcy petition. In most cases, your attorney will notify your creditors prior to filing the bankruptcy petition so the creditors stop calling you.

Can I keep a credit card out of my bankruptcy?

In most cases, you must include all your credit cards. There are some instances where you can keep a credit card, but you will want to discuss each situation with your attorney.

How does bankruptcy affect my credit?

It hurts your credit, but if you are considering bankruptcy, chances are your credit is already affected. Bankruptcy allows you to start to rebuild your credit.

Most people have difficulty obtaining credit within one year of the bankruptcy. You can buy a car at a high interest rate with a substantial amount down. After the first year, things get easier. Many mortgage lenders will grant you a loan at their lowest interest rates four years after the bankruptcy. Bankruptcy stays on your credit reports 7 to 10 years.

How long does the bankruptcy process take?

In a Chapter 7, you attend the § 341(a) Meeting of the Creditors approximately one month after you file your bankruptcy petition. You then receive the discharge about two months after that.

In a Chapter 13, you attend the § 341(a) Meeting of the Creditors approximately 45 days after your bankruptcy petition is filed. The Confirmation hearing may be between 7 and 45 days after the § 341(a) Meeting of the Creditors, depending on where your petition is filed. Once your plan is confirmed, you make your payments for three years and then receive the discharge.

Note: In either chapter, you will need to complete a pre-petition bankruptcy counseling session before you file bankruptcy and you must complete a debtor education course in order to receive a discharge on your bankruptcy.

If I'm married, do we have to file together?

No. Sometimes only one spouse files, but that is an exception. You may be able to file without your spouse if you have been married a short time or have all the debt in your name alone. Your spouse will be involved in a Chapter 13 whether his or her name is on the petition or not.

Should I use an attorney to help me file bankruptcy?

For Chapter 7's, that depends on your experience in reading forms, interpreting the U.S. Bankruptcy Code, and talking under pressure. For most people, the answer is yes. Attorneys do more than fill out the forms. They also attend the 341 (a) Meeting of the Creditors, negotiate with the creditors, advise clients about offers to accept or reject, and give legal advice in general. A paralegal can fill out the forms, but cannot represent the debtor or give legal advice about how to fill out the forms, or what the law says about your particular situation.

What happens when I go to court?

In the § 341(a) Meeting of the Creditors, some creditors such as Sears or Best Buy may show up and ask about the property you bought from them. There is a trustee who reviews your bankruptcy petition and determines if you have any assets to give the unsecured creditors in Chapter 7's. Your attorney, in most cases, may help you on your behalf with those creditors at these meetings.

What Is a Bankruptcy Discharge and How Does It Operate?

One of the reasons people file bankruptcy is to get a "fresh start". A discharge is a Court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for:

• Most taxes
• Child support
• Alimony
• Student loans
• Court fines, criminal restitution and personal injury caused by driving under the influence of alcohol or drugs

The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged. It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a Court order. You can only receive a chapter 7 discharge once every eight years.

No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement or any other kind of document to do this. Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.

What is a Debt Management Plan?

A Debt Management Plan (DMP) consolidates only unsecured debts. A consumer would still be responsible for negotiating terms with their secured creditors -- such as a mortgage or auto lender. A DMP is not a loan. A standard DMP allows a consumer to consolidate all or most of their credit cards, medical bills and other unsecured debts into one monthly payment.

Each unsecured creditor is different and some offer voluntary "concessions" such as lowering interest rates, re-aging a delinquent account, or waiving late and/or over-limit fees. These concessions, if offered, vary significantly from creditor to creditor.

What is a Reaffirmation Agreement?

Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the Court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements:

• Must be voluntary;
• Must not place too heavy a burden on you or your family;
• Must be in your best interest; and
• Can be canceled anytime before the Court issues your discharge or within 60 days after the agreement is filed with the Court, whichever gives you the most time.

If you are an individual and you are not represented by an attorney, the Court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the Court approves it. If you reaffirm a debt and then fail to pay it, you owe the debt as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.

When I file bankruptcy, do I have to go to court?

Yes. Whether you file a chapter 7 or 13 bankruptcy petition, you have to attend a § 341(a) Meeting of the Creditors in either chapter. These usually last less than one hour, but can last all day in a Chapter 13.