Common Questions about Bankruptcy
Frequently Asked Questions About Bankruptcy
What is bankruptcy?
Bankruptcy allows individuals or businesses (debtors) who owe others (creditors) more money than they're able to pay to either work out a plan to repay the money over time or completely eliminate (discharge) most of the bills.
Who can file bankruptcy?
With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition.
What do I need to begin the bankruptcy process?
Compile a list of past and present debts as well as a schedule, or list, or assets and liabilities. You'll also need a statement of financial affairs to file with the bankruptcy court in addition to your filing fee.
Do you have to have a certain amount of debt to file?
No. However, some situations may not warrant filing for bankruptcy. If your financial situation is temporary, you may consider making arrangements with individual creditors for a change in payment amounts or a reduction in the total amount due. If you have little property or money, filing bankruptcy may not be necessary, as the creditor may not be able to collect the debt.
Which Bankruptcy type or chapter should I file?
Consumers typically file Chapter 13 bankruptcy, where repayment is made to creditors, or Chapter 7 where the debts are dismissed. Each chapter of bankruptcy spells out:
How often can you file for bankruptcy?
Filing bankruptcy can adversely affect your ability to obtain future credit, rent housing and even negatively impact a job application. Any decision to file must be carefully considered.
What's the difference between secured and unsecured debt?
Secured debt is a claim that's secured by some type of property, either by an agreement or involuntarily with a court judgment or taxes. Creditors can generally claim the property (and take it to pay off the debt ) in the event of bankruptcy. Unsecured debt is not tied to any type of property, and the creditor can't claim it if you file for bankruptcy. A mortgage is a secured debt on you property.
What happens if one spouse files for bankruptcy and not the other?
If one spouse files and the other doesn't, the one who doesn't file could be responsible for the debts. Review this carefully before filing.
Does my divorce decree protect me from creditors if my ex files for bankruptcy?
No. If you're a co-signor with your ex-spouse on a debt acquired while married, the creditor can require the entire payment of that debt from you even though the divorce decree assigns the full debt to your ex-spouse. Your divorce decree may address any recourse you may have against your ex-spouse should he default on the loan obligations.
Can a loan co-signer be responsible for a debt if the other person declares bankruptcy?
Yes. The lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. This makes it extremely important when considering co-signing a loan: Be ready, and able, to pay the loan in the event that the principal signor defaults.
Can all types of debt be discharged?
The debts that can't be discharged vary slightly between the different chapters of bankruptcy. Generally, the following cannot be discharged:
What can I keep, if anything, if I file bankruptcy?
Exemptions allow an individual to "exempt", or keep, certain kinds of property. State law defines what assets are considered "exempt," but typically include:
Do I have to file bankruptcy on all the accounts I owe, or can I keep some?
You must include all the debts you owe in your petition and schedules. You may opt to keep some debts by "reaffirming" the specific debt.
Will I lose my retirement accounts or payments from social security?
Generally, no. Retirement accounts that are ERISA-qualified aren't considered property of an estate and aren't taken into consideration as assets. Social Security benefits are protected from assignment, or garnishment for debts in bankruptcy. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the "only" deposits into the account are direct deposits of Social Security benefits are identifiable and generally protected.
Will I lose my home if I file for bankruptcy?
There are many factors that impact the ability to keep your home, including:
How long does a bankruptcy stay on my record?
Bankruptcies remain on credit reports anywhere from 7 up to 10 years.
Can I do anything to remove a bankruptcy from my credit report?
No. Although at your option, you can file an explanation with the credit reporting agencies briefly describing the events resulting in your bankruptcy. If an account is reported inaccurately, you can request the record be updated to reflect the actual situation.
When can I apply for credit again?
The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor. There's no law that prevents anyone from extending credit to you immediately after the filing of a bankruptcy, but creditors aren't required to extend you credit.
Can a creditor continue to contact me after I've filed for bankruptcy?
During the time the debtor is working out a plan or the trustee is gathering and preparing the assets to sell, creditors are required by law to stop all collection efforts against you. As soon as the bankruptcy petition is stamped "Relief Ordered" upon filing, you're immediately protected from your creditors. This is called an automatic stay. After that time, if a creditor attempts to collect a debt, immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case name number and filing date or a copy of the petition that shows it was filed. If the creditor still continues to collect, you may be entitled to take legal action against it.
Who lets my creditors know I've filed for bankruptcy?
The bankruptcy court notifies, by mail, all creditors advising them of:
Can creditors object to a bankruptcy filing or plan?
Yes. Bankruptcy filings allow creditors to object to specific debts in the plan or the repayment or cancellation in its entirety.
When should I stop using my credit cards if I'm planning on filing for bankruptcy?
As soon as you anticipate filing bankruptcy, stop using your credit cards. Bankruptcy law allows the review of questionable purchases for potential fraud. If purchases are made 40 days prior to filing or cash advances taken within 20 days of filing, the debt may possibly be excluded from the bankruptcy and it can be dismissed.
Bankruptcy allows individuals or businesses (debtors) who owe others (creditors) more money than they're able to pay to either work out a plan to repay the money over time or completely eliminate (discharge) most of the bills.
Who can file bankruptcy?
With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition.
What do I need to begin the bankruptcy process?
Compile a list of past and present debts as well as a schedule, or list, or assets and liabilities. You'll also need a statement of financial affairs to file with the bankruptcy court in addition to your filing fee.
Do you have to have a certain amount of debt to file?
No. However, some situations may not warrant filing for bankruptcy. If your financial situation is temporary, you may consider making arrangements with individual creditors for a change in payment amounts or a reduction in the total amount due. If you have little property or money, filing bankruptcy may not be necessary, as the creditor may not be able to collect the debt.
Which Bankruptcy type or chapter should I file?
Consumers typically file Chapter 13 bankruptcy, where repayment is made to creditors, or Chapter 7 where the debts are dismissed. Each chapter of bankruptcy spells out:
- What bills can be eliminated
- How long payments can be stretched out
- What possessions you can keep
- Additional information
How often can you file for bankruptcy?
Filing bankruptcy can adversely affect your ability to obtain future credit, rent housing and even negatively impact a job application. Any decision to file must be carefully considered.
- Chapter 7 - can be filed every 8 years from a previous Chapter 7 filing, or 6 years from a prior Chapter 13 filing.
- Chapter 13 - can be filed 4 years from a prior Chapter 7 filing, or 2 years from a prior Chapter 13 filing.
What's the difference between secured and unsecured debt?
Secured debt is a claim that's secured by some type of property, either by an agreement or involuntarily with a court judgment or taxes. Creditors can generally claim the property (and take it to pay off the debt ) in the event of bankruptcy. Unsecured debt is not tied to any type of property, and the creditor can't claim it if you file for bankruptcy. A mortgage is a secured debt on you property.
What happens if one spouse files for bankruptcy and not the other?
If one spouse files and the other doesn't, the one who doesn't file could be responsible for the debts. Review this carefully before filing.
Does my divorce decree protect me from creditors if my ex files for bankruptcy?
No. If you're a co-signor with your ex-spouse on a debt acquired while married, the creditor can require the entire payment of that debt from you even though the divorce decree assigns the full debt to your ex-spouse. Your divorce decree may address any recourse you may have against your ex-spouse should he default on the loan obligations.
Can a loan co-signer be responsible for a debt if the other person declares bankruptcy?
Yes. The lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. This makes it extremely important when considering co-signing a loan: Be ready, and able, to pay the loan in the event that the principal signor defaults.
Can all types of debt be discharged?
The debts that can't be discharged vary slightly between the different chapters of bankruptcy. Generally, the following cannot be discharged:
- Debts for taxes owed to local, state or federal agencies
- Debts for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained fraudulently
- Debts that weren't in the initial list of debts or that the debtor waived being cancelled
- Debts owed to a spouse, former spouse, or child, for alimony, maintenance, or support of a spouse or child, with a separation agreement, divorce decree or other order of a court of record
- Debts owed for injury to another person or property owned by another (as in a court judgment)
- Debts for government-sponsored educational loans, unless it can be shown that repayment will cause an undue hardship
- Debts for death or personal injury caused by the debtor's drunk driving or from driving while under the influence of drugs or other substances (as in a court judgment)
- Debts incurred after a bankruptcy was filed
- Any type of legal judgment
What can I keep, if anything, if I file bankruptcy?
Exemptions allow an individual to "exempt", or keep, certain kinds of property. State law defines what assets are considered "exempt," but typically include:
- Jewelry
- Vehicles up to a certain amount
- Equity in a home up to a certain amount
- "Tools of the trade" or tools and equipment necessary to allow the individual to continue working
Do I have to file bankruptcy on all the accounts I owe, or can I keep some?
You must include all the debts you owe in your petition and schedules. You may opt to keep some debts by "reaffirming" the specific debt.
Will I lose my retirement accounts or payments from social security?
Generally, no. Retirement accounts that are ERISA-qualified aren't considered property of an estate and aren't taken into consideration as assets. Social Security benefits are protected from assignment, or garnishment for debts in bankruptcy. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the "only" deposits into the account are direct deposits of Social Security benefits are identifiable and generally protected.
Will I lose my home if I file for bankruptcy?
There are many factors that impact the ability to keep your home, including:
- The state you're in and the exemptions allowed
- The status of your loan (current or in foreclosure)
- The type of bankruptcy you're filing (Chapter 13 provides more protection than Chapter 7 as long as payments are current)
How long does a bankruptcy stay on my record?
Bankruptcies remain on credit reports anywhere from 7 up to 10 years.
Can I do anything to remove a bankruptcy from my credit report?
No. Although at your option, you can file an explanation with the credit reporting agencies briefly describing the events resulting in your bankruptcy. If an account is reported inaccurately, you can request the record be updated to reflect the actual situation.
When can I apply for credit again?
The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor. There's no law that prevents anyone from extending credit to you immediately after the filing of a bankruptcy, but creditors aren't required to extend you credit.
Can a creditor continue to contact me after I've filed for bankruptcy?
During the time the debtor is working out a plan or the trustee is gathering and preparing the assets to sell, creditors are required by law to stop all collection efforts against you. As soon as the bankruptcy petition is stamped "Relief Ordered" upon filing, you're immediately protected from your creditors. This is called an automatic stay. After that time, if a creditor attempts to collect a debt, immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case name number and filing date or a copy of the petition that shows it was filed. If the creditor still continues to collect, you may be entitled to take legal action against it.
Who lets my creditors know I've filed for bankruptcy?
The bankruptcy court notifies, by mail, all creditors advising them of:
- The filing of the bankruptcy
- The case number
- The automatic stay
- The name of the trustee assigned to the case (if filed under chapters 7 or 13)
- The date set for the meeting of creditors
- The deadline, if any, set for filing objections to the dismissal of debts
- Whether and where to file claims
Can creditors object to a bankruptcy filing or plan?
Yes. Bankruptcy filings allow creditors to object to specific debts in the plan or the repayment or cancellation in its entirety.
- Chapter 7: Creditors generally have 60 days after the first creditors meeting to object to the discharge of a specific debt. If no objections are filed, the court issues the discharge order, the trustee collects and sells the assets and then distributes the proceeds to the creditors under a predetermined schedule. If there are objections, the bankruptcy proceedings, less the objected debt(s), continues. A trial may be necessary to resolve the objectionable issues.
- Chapter 13: Creditors can object to the plan for repayment and the court may take this into consideration. If no objections are filed by creditors or the trustee, the plan may be confirmed as filed.
When should I stop using my credit cards if I'm planning on filing for bankruptcy?
As soon as you anticipate filing bankruptcy, stop using your credit cards. Bankruptcy law allows the review of questionable purchases for potential fraud. If purchases are made 40 days prior to filing or cash advances taken within 20 days of filing, the debt may possibly be excluded from the bankruptcy and it can be dismissed.