Bankruptcy
Bankruptcy is a proceeding under federal law whereby you are granted partial or complete relief from the payment of your debts. This relief is provided in the form of an “automatic stay” issued automatically and immediately upon the filing of the bankruptcy petition which stops all creditor collection activities. The Bankruptcy Court enters an order at the end of the case relieving you from responsibility for paying certain debts. This final order is called the "discharge".
What happens if I file a Chapter 7 bankruptcy?
You commence a chapter 7 bankruptcy proceeding by filing a "petition" with the bankruptcy court. The person filing a Chapter 7 is referred to as the "debtor." The debtor is required to disclose to the court all his or her property and debts and turn over all nonexempt property to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor then receives a discharge of all dischargeable debts.
Who can file a Chapter 7 bankruptcy petition?
Almost any individual, partnership, corporation or business trust may file a chapter 7 bankruptcy petition if he or she resides, has a domicile, a place of business, or property in the United States, or a municipality. If you were granted or denied a chapter 7 discharge in a prior case within the last 6 years or completed a chapter 13 plan in a prior case, you might not be entitled to receive a discharge in bankruptcy and probably are not a candidate for a chapter 7 bankruptcy proceeding. This rule does have some exceptions.
What are the most common reasons for a Chapter 7 bankruptcy?
The most common reasons for consumer bankruptcy are: unemployment; large medical expenses; seriously over-extended credit; marital problems and other large unexpected expenses.
Who can file a Chapter 13 bankruptcy petition?
Individuals may file Chapter 13 bankruptcy petitions if they:
- reside, have a domicile, a place of business, or property in the United States, or a municipality;
- have a source of regular income; and
- on the date the petition is filed owe less than $250,000 in noncontingent, liquidated, unsecured debts and less than $750,000 in noncontingent, liquidated, secured debts.
Corporations and partnerships may not file a Chapter 13 bankruptcy petition.
If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition .
Will the bankruptcy stop bill collectors from calling?
Yes. The automatic stay prevents bill collectors from taking any action to collect debts.
How long after filing will the creditors stop calling?
Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts. After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the bankruptcy petition, and supply them with the "docket number" for your case. In some cases, you or your attorney should contact the creditor immediately upon filing the bankruptcy petition, especially if a law suit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for this conduct.
Who notifies the creditors and bill collectors?
After the bankruptcy petition is filed, the court mails a notice to all the creditors listed in the schedules. This usually takes a couple of weeks.
Who deals with my creditors and bill collectors during the bankruptcy?
Your attorney deals with all creditors.
Will my employer and landlord find out about my bankruptcy?
Bankruptcy petitions are public records. However, under normal circumstances, unless your employer or landlord is a creditor, it will not know you filed a bankruptcy petition. If your employer or landlord is a creditor it must be listed as a creditor on the schedules and receive notice of the bankruptcy proceeding. In some states, Chapter 13 debtors are required to make payments through wage garnishment and their employer will learn about the bankruptcy.
Can my employer fire me for filing bankruptcy?
No. 11 U.S.C. sec. 525 prohibits government units and private employers from discriminating against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt.
Can I go to jail if I file bankruptcy or don't pay my debts?
No. There are no debtor's prisons in the United States.
Does the spouse of a married person also have to file bankruptcy?
No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. If the spouses have joint debts, the fact that one spouse discharged the debt may show on the other spouses credit report.
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 which 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.
Will I have to fill out forms?
Filing bankruptcy means filling out forms. The attorney you hire may ask you to fill out forms to provide him or her with the information needed to file the bankruptcy petition. The attorney will use the information you provide to complete the official forms, usually using a specialized computer program.
Will I have to go to court?
About 30 to 40 days after filing the bankruptcy petition, you will have to attend a hearing presided over by a bankruptcy trustee. This hearing is called the First Meeting of Creditors. The trustee is not a judge, but an individual appointed by the United States Trustee to oversee bankruptcy cases. At the First Meeting of Creditors the trustee will ask you questions under oath regarding the content of your bankruptcy papers, your assets, debts and other matters. Creditors will also be permitted to ask you questions, although in the majority of cases creditors do not ask questions at the First Meeting of Creditors.
After the initial meeting you normally do not need to return to court. However, if a creditor or the trustee files a motion or an adversary action you may have to appear in court with your attorney.
Are there alternatives to bankruptcy?
Yes. Sometimes payment plans can be negotiated with creditors. Obtaining loan extensions, compromises and workout agreements require negotiation skills and experience. These alternatives may alert your creditors to the existence of nonexempt property that the creditor could reach and can involve considerable expense. You also have the option of doing nothing. In any event you should seek professional advise in dealing with most of these alternatives.