Bankruptcy

What is Bankruptcy?

Individuals who are having problems paying their bills or who are threatened by a creditor with a lawsuit, a garnishment, or a seizure of property often consider bankruptcy as a solution to their problem. The bankruptcy law is a federal law which is available to individuals throughout the United States. Bankruptcy courts are federal courts.


How do I obtain relief from my creditors?

In most cases, filing a bankruptcy case will achieve relief from debt. A bankruptcy normally results in the grant of a discharge of debts to an individual. A discharge is the forgiveness of personal liability for debts which have been incurred prior to the filing of the case. With few exceptions, creditors are prohibited from suing you, obtaining a judgment, or collecting for debts which have been discharged and will have no claim on your future income or assets if you receive a bankruptcy discharge.


What is a Chapter 7 Bankruptcy case?

Chapter 7 is what most people refer to as straight bankruptcy. In a Chapter 7, most debts are discharged without repayment. However, secured debts (a car loan, for example) must be reaffirmed in order to protect the collateral. Debtors are entitled to keep a certain amount of property, called exempt property. Property with a value over and above the allowed exemptions may be sold by the Court?s trustee.


Will all debts be discharged in a Chapter 7?

A debtor cannot discharge certain debts, including most taxes, student loans, alimony and child support, debts incurred through fraud or theft, and certain other types of non-dischargeable debt.


How often can I file a Chapter 7 Bankruptcy case?

You cannot file a Chapter 7 Bankruptcy if you have filed under Chapter 7 within the last six years. However, you may still be able to file a Chapter 13 Bankruptcy.


What is a Chapter 13 Bankruptcy case?

Chapter 13 is entitled Adjustment of Debts of Individuals with Regular Income. Chapter 13 debtors pay all or part of their debts through a repayment plan supervised by the court. Chapter 13 is available only to individuals with regular income whose debts are less certain limits set by Congress. The Chapter 13 debtor?s income must be regular but can come from such things as pension,
welfare, or alimony, as well as regular employment.


How does Chapter 13 work?

Under Chapter 13, the debtor presents a plan of debt repayment which is reviewed by the Chapter 13 trustee, creditors, and the Bankruptcy Court. The plan must be filed in good faith, must provide for payments that are feasible in light of the debtor?s income and expenses, and must also provide for payments over time that are equal in value to the money creditors would have received if the debtor had chosen Chapter 7 liquidation instead of Chapter 13. If the Chapter 13 plan is approved, all payments are made through the Chapter 13 trustee?s office, and the trustee is paid a small commission. Most plans must run at least three years and cannot exceed five years. Chapter 13 provides that the debtor receives a discharge from most pre-bankruptcy debt after making the payments called for by the plan.


Can I keep my property in Chapter 13 Bankruptcy?

In most cases, a Chapter 13 plan can protect your property. The plan must provide for payment of its full value over time.


What happens if I do not complete my plan payments in a Chapter 13?

If you are unable to complete your plan payments, the Trustee or any of your creditors can ask the court to dismiss your case. In most cases you would have the right to convert the case to a Chapter 7 Bankruptcy if you choose to do so.


How will bankruptcy affect my credit?

Bankruptcy filings may be reflected on your credit report for up to ten years. Many people are able to reestablish good credit much sooner, however. The length of time necessary to reestablish good credit depends on many factors, including income, home ownership, years of employment, etc.


Can I protect others liable on the debt?

Creditors are prohibited from attempting to collect pre-bankruptcy debts from a debtor under either Chapter 7 or Chapter 13. But the filing of a Chapter 13 can also stop all actions against certain co-debtors. This protection may be permanent if the plan provides for payment of the cosigned debt in full and the plan is successfully completed.


If I cannot make my plan payments, can I request that the plan be changed to more lenient terms?

Yes. Under certain circumstances you can request that the court change your plan so that your payments will be more in line with your ability to pay. If you then complete the payments under the modified plan, you will receive a discharge.