Bankruptcy FAQ
BANKRUPTCY FAQ
Here are some common questions often asked by clients considering bankruptcy as a solution to their financial concerns. The answers to these questions are general and may not fit your specific situation.
1. When should I consider bankruptcy?
Singular events such as unemployment, divorce, an illness, lawsuits or significant IRS debt often force people to struggle financially. If any of the following are true for you, you might want to consider bankruptcy as an option to getting back on your feet.
• You cannot pay your bills as they come due
• You start considering using your VISA card to pay your MasterCard
• You receive a letter from your mortgage company threatening foreclosure;
• You face the repossession or imminent repossession of a vehicle;
• Your wages are garnished
• You are considering a home equity loan or cashing in your 401(k) or your IRA to consolidate your bills
• You just can’t take the stress any more from collection letters and phone calls.
In the vast majority of cases, people who file bankruptcy keep all of their assets. In fact, assets like your home, car, pension fund and IRA are protected from your creditors if you file bankruptcy.
2. Are there alternatives to bankruptcy?
Of course. Some people have successfully managed their finances through a payment plan that can be negotiated directly with a creditor. Our office can represent you in obtaining loan extensions, compromises and workout agreements through negotiation.
Note: Texas law allows creditors to satisfy their judgments out of the debtor’s property, including bank accounts and certain personal property. If you sell real property after the judgment is filed, you will most likely have to satisfy the judgment out of the proceeds of the sale. Judgment creditors cannot, however, foreclose on your homestead to satisfy the judgment, and they cannot garnish your wages.
3. What kinds of bankruptcies are there?
There are five kinds of bankruptcy.
Chapter 7 – liquidation of credit card debt primarily with the ability to reaffirm secure debts
Chapter 9 – reorganization for municipal entities
Chapter 11 – reorganization for businesses and for individuals with excessive debt
Chapter 12 – reorganization for family farmers
Chapter 13 – reorganization for individuals with a regular source of income who want to save their home from foreclosure
Most individuals and couples file either a Chapter 7 case or a Chapter 13 case. If you choose to file either of these, you are required to take a Debtor Credit Counseling class prior to filing.
4. What is a Chapter 7 and can I qualify?
In a Chapter 7 bankruptcy, many or all of your debts are wiped out completely by liquidating (selling) nonexempt property and paying off your creditors. However, the court assures that you have sufficient assets to make a fresh start and so some assets (exempt property) are not eligible for liquidation. In most cases, you receive a discharge of all dischargeable debts (see below for definition).
Almost any individual, partnership, or corporation can file a Chapter 7 bankruptcy petition. The debtor must reside, have a domicile, a place of business, or property in the United States. You can file a Chapter 7 bankruptcy petition regardless of whether or not you are employed.
In order to be eligible for Chapter 7, the debtor must satisfy a “means test” (see below for definition). The court will evaluate the debtor’s income and expenses to determine if the debtor may proceed under Chapter 7.
If you filed bankruptcy before, your right to a discharge may be affected
5. What is a Chapter 13 bankruptcy and do I qualify?
When you file a Chapter 13 case, you agree to pay over to the Chapter 13 trustee a portion of your disposable income each month for 3 to 5 years. The disposable income is the money you have left over after your necessary expenses are paid. These payments are used to pay your creditors a agreed-upon percentage of your original debt. Usually, your assets are not affected. Only your future income is paid to the trustee.
Individuals may file Chapter 13 bankruptcy petitions if they (1) reside, have a domicile, a place of business, or property in the United States, or a municipality; and (2) have a source of regular income. Corporations and partnerships may not file a Chapter 13 bankruptcy petition.
If you filed bankruptcy before, your right to a discharge in a succeeding case may be affected.
6. How much does bankruptcy cost?
The cost of bankruptcy varies because each debtor’s situation is different. However, payment plans are available and our job is to help your regain your financial freedom from debt collectors and the like.
7. Does my spouse have to file?
It depends on the situation of each creditor. In Texas, the spouse may still be liable for part of the debt, even though the debtor’s part has been discharged.
Note: Bankruptcy is a federal legal process for debt management available to most individuals and businesses. Successfully completing a bankruptcy case allows individuals and businesses to either eliminate or reorganize most of their debt. The bankruptcy laws are contained in 11 U.S.C. Sec. 101 et seq.
8. How long does a bankruptcy stay on your credit report?
The bankruptcy stays on your credit report for 10 years. However, the more time that passes by, the less of an impact it has on your credit score.
9. When do I get relief from creditor harassment?
By law, once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts. A provision of the Bankruptcy Code called the automatic stay prevents bill collectors from taking any action to collect debts. A creditor may be liable for court sanctions if it continues to use collection tactics once informed of the bankruptcy.
10. Will bankruptcy stop a wage attachment, foreclosure proceeding, or prevent repossession of my car?
Yes, including IRS wage attachments. If you file a Chapter 7 case, you may be able to arrange with the creditor to catch up the payments. If you file a Chapter 13 case, the past due payments can be included in the Chapter 13 and paid over time.
Note: A Chapter 13 is the better choice for debtors facing foreclosure or repossession.
11. Will bankruptcy stop a lawsuit?
Bankruptcy stops most civil lawsuits, including most IRS proceedings.
12. Must I list all my creditors?
Yes. If you intentionally omit a creditor from your schedules, you have committed perjury.
Note: If you accidentally omit a creditor, and the creditor does not know about your bankruptcy case, the debt owed to that creditor might not be discharged.
13. If I am divorced, will bankruptcy eliminate my obligation to pay community debts?
In general, you will be discharged from all dischargeable community debts. In some circumstances you may still be liable to your spouse if she or he pays the debt.
14. Can I keep any credit cards?
Under some circumstances you may be able to keep some credit cards if the creditor agrees. There are many factors that must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt.
15. Do I have to list all of my assets?
Yes. Your assets include your personal property, any real estate you have an interest in, your right to receive something from a contract, debts that people owe you, and many other types of property.
Note: If you knowingly and fraudulently conceal an asset from the court, you have committed a FELONY and can be fined or imprisoned or both. Furthermore, the court can deny your discharge, or dismiss or convert your bankruptcy case.
16. Does my spouse have to file?
It depends on the situation of each creditor. In Texas, the spouse may still be liable for part of the debt, even though the debtor’s part has been discharged.
Note: Bankruptcy is a federal legal process for debt management available to most individuals and businesses. Successfully completing a bankruptcy case allows individuals and businesses to either eliminate or reorganize most of their debt. The bankruptcy laws are contained in 11 U.S.C. Sec. 101 et seq.
