Bankruptcy FAQs

For those that qualify, a Chapter 7 bankruptcy will discharge debt so that you are no longer responsible for it and provide a fresh start. Chapter 7 bankruptcy is also a liquidation proceeding. Because of the powers of the bankruptcy trustee to sell assets, it is extremely important that you discuss your assets with an experienced bankruptcy lawyer like Michael Schwartz to make sure your assets can be protected in a Chapter 7 bankruptcy. If an asset is not properly protected, the debtor turns over the unprotected property to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. In a successful Chapter 7 bankruptcy, a debtor will receive a discharge within 3 to 4 months after filing the Chapter 7 bankruptcy.

In order to file a Chapter 7 bankruptcy, the debtor must reside or have a domicile, a place of business, or property in the United States or a municipality. The debtor must not have been granted a previous Chapter 7 discharge within the last 8 years. In addition, the debtor must not have had a bankruptcy filing dismissed for cause within the last 180 days. In order for the Chapter 7 bankruptcy to be successful, the Debtor must qualify – this is an income based qualification. Speak to an experienced bankruptcy lawyer to find out whether or not you will qualify for the Chapter 7 discharge.

Chapter 13 is a reorganization of debt. The debtor pays back at least some of the debt owed to creditors through a monthly plan payment handled by the bankruptcy trustee. Generally, the duration of the plan ranges from 3 to 5 years. A chapter 13 bankruptcy is frequently used to stop foreclosure, sheriff sale, repossession and other types of emergency situations. When Chapter 7 is not available, Chapter 13 bankruptcy is a great alternative in many situations. An experienced bankruptcy lawyer like Michael Schwartz can guide you to the appropriate type of bankruptcy for your situation.

The same filing requirements apply to Chapter 13 debtors as to Chapter 7 debtors, with some differences. Normally, the Chapter 13 debtor must have a steady income. Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual’s combined total secured and unsecured debts are less than $2,750,000 as of the date of filing for bankruptcy relief.

The most common reasons for consumer bankruptcy are: unemployment; large medical expense; seriously over-extended credit; marital problems and other large unexpected expenses.

If someone cannot qualify for Chapter 7 due to income or assets, Chapter 13 bankruptcy is usually a good alternative. An important reason to file for Chapter 13 bankruptcy is the automatic stay that will save a home from foreclosure or stop a repossession of their car. Under a Chapter 13 plan, the debtor will be able to pay all back payments on their mortgage or car loan over a period of time (for example, three years) to save their home or car. Chapter 13 is also a good way to resolve IRS debt and high unsecured debt when Chapter 7 is not available.

The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding. Not all debts are dischargeable. For example, the following debts are generally not dischargeable: taxes; spousal and child support; student loans; criminal fines and penalties; debts arising out of willful or malicious misconduct; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy. Secured debts like mortgages and car loans, may be discharged; however, the creditors lien against the property will usually remain.

Yes. One of the major benefits of filing for protection under Chapters 7 and 13 is that many creditors’ actions are stayed. This means that debt collection efforts and foreclosure must be halted. The bankruptcy filer can then manage the creditor through bankruptcy.

Once a creditor or bill collector becomes aware that the debtor has filed for bankruptcy protection, he/she must stop all efforts to collect the debt. If a creditor continues to use collection tactics after notification of the bankruptcy proceeding, he/she may be liable for court sanctions and attorneys’ fees.

Under a Chapter 7 proceeding, if the home is properly protected through bankruptcy exemptions, you can keep your home so long as you are current and stay current in your mortgage payments. However, even if you do owe back payments, you may still be able to keep your home through a proposed Chapter 13 monthly plan wherein you would pay all back payments on the mortgage over a payment plan.

You are permitted exemptions for personal property, including personal property such as household furnishings and personal effects, clothes, jewelry, personal injury award and other miscellaneous property. You are allowed an additional $4,450.00 exemption on the equity in your automobile. In addition, there is no limit as to the amount you may keep in your retirement plans, pension plans, most annuities and unmatured life insurance. It is important to speak to an experienced bankruptcy lawyer like Michael Schwartz who can explain the exemptions for your particular situation.

Mostly all credit cards will be closed by the lender after a bankruptcy case is filed. There will be new opportunities to apply for new cards when the bankruptcy ends. Some clients get a secured credit card to use during bankruptcy. Debit cards may also be used.

No. In some cases where only one spouse has debts, or where the other spouse has debts that are not dischargeable, then it might be advisable to have only one spouse file. However, in some cases where real property is involved, or where the spouse is a co-debtor on most of the other spouse’s dischargeable debts, then the question of joint bankruptcy is a little trickier, and questions should be referred to an experienced bankruptcy lawyer like Michael Schwartz.

For Chapter 13 cases, the values of the property are merely used within a formula to determine how much the creditors have to get paid during the bankruptcy plan. Your property is safe in Chapter 13. Chapter 7, on the other hand, is a liquidation prossess. While a Debtor will receive a certain amount of protection for personal property and real estate, if the values of those things are too high, the property can be at risk to be sold by the Chapter 7 Trustee. It is important to consult an experienced bankruptcy attorney like Michael Schwartz to make sure that you can keep the property that is important to you.

Unless your employer is a creditor, generally your employer will not be notified of your filing.

No. Bankruptcy laws prohibit discrimination based upon a debtor filing for bankruptcy protection.

No. There is no debtor’s prison in the United States.

Yes. However, the debtor cannot recover that amount already garnished by the creditor before the debtor filed for bankruptcy.

Generally, yes. However, since a home is an asset usually secured by a deed of trust, the lender will be entitled to apply to the court for relief from the automatic stay (the order preventing creditor action by virtue of the bankruptcy). Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. If you are trying to save your home, in most cases it is more appropriate to file a Chapter 13 to force the mortgage company into a payment plan on the money owed.

Perhaps. However, this will only delay the inevitable. The landlord is entitled to possession of his property and at best you will be able to remain in the property until you have received your discharge from bankruptcy or the landlord obtains an order from the bankruptcy court to go forward with the eviction. If the landlord already has recieved a judgment for possession before the bankruptcy is filed, he may be able to proceed with his eviction notwithstanding the bankruptcy filing. It is important to speak with an experienced bankruptcy lawyer like Michael Schwartz so that you know your rights.

Yes. Most civil judgments are stopped by bankruptcy.

Under some circumstances, once the bankruptcy proceedings have started, a special motion can be filed to remove certain liens. It will take a bankruptcy court order to remove them. This is a complicated area of the bankruptcy law and an attorney should be consulted. However, generally, you may not remove already existing tax liens until they are paid. In this circumstance, Chapter 13 bankruptcy may be a good option.

If the debt is a dischargeable debt, then only the person filing the bankrupty will receive a discharge and will not have to pay it. However, unless the co-signer also files bankruptcy, the co-signer becomes primarily responsible for the debt.

After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your lawyer send a special notice to those creditors who are agressively collecting.

You are permitted to file an amendment to your schedules up to a certain time before discharge. If the amendment is timely filed, then the omitted creditor is added to the bankruptcy. However, if you fail to list a creditor, you may not be able to use the bankruptcy laws to protect you against that creditor. There are some exceptions to this in a no asset Chapter 7 bankruptcy. Accordingly, it is in your best interest to list every creditor, whether or not you dispute his/her claim against you.

Yes. About 45 to 60 days after you file for bankruptcy, you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing, the trustee will ask you questions under oath regarding the content and accuracy of your bankruptcy petition. After the trustee is done, any creditors who attend will be permitted to question you. If you have an attorney, your attorney will be there to represent you and will help prepare you for the hearing. in the Eastern District of PA (Philadelphia and Reading), these hearings are being held by zoom. After this hearing, you will normally not need to return to court unless a creditor files an objection to the bankruptcy.

Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 90 days after the First Meeting of Creditors. What this means is all of the debtor’s dischargeable debts are now “wiped out” and the creditors of those debts may not take any actions against the debtor to satisfy those debts. The bankruptcy court will mail a copy of the bankruptcy discharge to you. If you are a client of Michael Schwartz, he will also email you a copy of the discharge once its entered.

The bankruptcy is a judgment and will be listed on a credit report for a period of ten years for Chapter 7 and 7 years for Chapter 13. In many cases, the credit score will actually increase after bankruptcy – especially if new credit establishedt and payments are timely going forward.

There are several ways to get credit after bankruptcy. First, one of your existing creditors may continue to grant you credit based upon a reaffirmation agreement made during the bankruptcy proceeding. Second, today there are several banks offering a secured credit card. This means that the credit limit is based upon the amount of security given. Note also that many creditors are more likely to extend you credit after you file for bankruptcy than before your filed. With all of your dischargeable debts wiped away, creditors view the debtor of now having more disposable income to pay the new debts. In addition, creditors know that the debtor cannot file for bankruptcy for another eight years, thereby shielding creditors from the bankruptcy laws during this time period. Additionally, many car lenders offer new car loans after a bankruptcy discharge. Obtaining a new car loan is a great way to increase your credit score after bankruptcy.

You should consult your attorney. In particular, there are three items worth mentioning. First, under bankruptcy law, certain purchases of luxurious items over $1,000 within 60 days of filing for bankruptcy are presumed to be nondischargeable. Also, under bankruptcy law, cash advances aggregating $1,000 within 60 days of the bankruptcy filing are presumed to be nondischargeable. Last, debts involving materially false financial statements are nondischargeable under certain circumstances.

To file another Chapter 7 bankruptcy, you must wait 8 years to file again. If you are filing Chapter 13 after 7, four years. If you are filing 7 after 13, 6 years.

The best person to help is your attorney. When you discuss your situation with your attorney, you will need to be prepared to discuss all areas of your case. This includes each and every debt and creditor you have. It is very important to list all your creditors in your bankruptcy. One of the best ways to know all your creditors is to get a credit report about your credit history. This report should list the majority of your creditors, even ones you did not know about. If Michael Schwartz is your client, it is his practice to run your credit report and make sure those creditors are included in the bankruptcy petition.

Bankruptcy is the only way to get absolute protection against collection because of the automatic stay that bankruptcy provides. Aside from debtor protection under the bankruptcy laws, there are some other alternatives for resolving debt. These include loan extensions, compromises, workout agreements and taking no action. Using these alternatives may alert your creditors to the existence of assets that the creditor could reach. In any event, you should seek professional advice in dealing with most of these alternatives.