What are the different types of bankruptcy cases?
For most individuals (either single filers or joint cases for a married couple), the most common type of bankruptcy case will be either a Chapter 7 case or a Chapter 13 case.
Chapter 7: This is the most common type of case, and is often referred to as a “liquidation” case or a “straight” bankruptcy. It can be used to eliminate debts such as credit card bills, medical bills, and certain taxes. Although it is referred to as a “liquidation” bankruptcy, the rules governing bankruptcy cases mean that most people who file are permitted to keep the vast majority, if not all, of the assets they own at the time they file a case.
Chapter 13: A chapter 13 case allows consumers who file to keep most, if not all, of their property, but they must establish a plan to repay at least some of their debt within a period of three to five years.
Can bankruptcy get rid of all of my debts?
Bankruptcy can help you get rid of some, but not all, kinds of debt. For example, unsecured debt from credit cards, hospital bills, and other claims that aren’t secured by a lien on property may be forgiven in most cases. However, child support, alimony, court fines and penalties, and taxes may not be discharged. Student loans are not dischargeable except in very rare cases. Some creditors, or the government, may also argue that a given debt should not be discharged, or a debtor should not qualify for any discharge at all, but these challenges are subject to the bankruptcy judge’s approval.
Will I be able to keep my house or my car if I am still making payments?
Bankruptcy generally will not change any liens a creditor has against your property, so if you are making payments on a mortgage, or a car payment, you will likely just continue making those payments and keep your house or your car. Occasionally, there is enough equity in real estate or a vehicle where liquidating the asset could be a consideration, but this is rare. If you are behind in your payments and want to catch up, a chapter 13 case will allow you to do so, as long as you stay current in your payments from the time you file going forward.
Can I choose which type of bankruptcy case to file? How do I choose the right one?
If you meet the eligibility requirements for both chapter 7 and chapter 13, then you may choose which type to file. If a debtor is eligible to file a chapter 7 case, that will almost always be the choice, as the process is much faster, the fees associated with a chapter 7 case are much lower, and a chapter 7 case will usually mean most of the debts will be discharged. To be eligible for chapter 7, though, a filer must pass a test based on income called a “means test.” Those who have income higher than the average income for a similarly-sized family are not eligible for a chapter 7 case if they would be able to repay some of their unsecured debt within five years. In addition to the means test for chapter 7, there is also a limit to the amount of debt that someone can have to be eligible to file a chapter 13 case.
What information will I need to discuss my potential bankruptcy case with an attorney?
In general, for the initial meeting, you will just need to be able to provide a broad description of the type of debts that you have, a general list of your assets, a description of your sources of income, and an estimate of your total monthly household expenses. This information will help the attorney determine which type of case will work for you. If you decide to file a bankruptcy case, there will be additional detail to gather.
How much debt do I have to have before filing a bankruptcy case?
There is no prescribed amount under the Bankruptcy Code. Some specialists suggest that you should not file unless you have at least $15,000 to $20,000 in unsecured debt. You can file with less, but the damage to your credit rating may outweigh the benefit of getting rid of a smaller amount of debt with a bankruptcy discharge.
Will bankruptcy affect my credit?
Yes, but perhaps not as much as you might expect. If you are already so far behind on your bills that you are having to think about bankruptcy, then your credit record has probably already taken a significant hit, and may actually improve by filing a bankruptcy case. Bankruptcy filings, generally, stay on your credit record for ten years, while bad debts can usually be seen for only seven. However, since bankruptcy wipes out your old debts, you are likely to be in a better position to pay new bills, and may actually have better credit immediately after the bankruptcy filing than just before. In addition, generally speaking, bankruptcy will set the floor on your credit record – once you file, your credit will begin to build back up again.
Will I actually have to go to court after filing for bankruptcy?
Anyone filing for bankruptcy, persons or companies, are required to attend a meeting of their creditors that is scheduled to take place approximately one month after the filing date. A court-appointed trustee will interview the debtor to make sure the information submitted on the bankruptcy petition, schedules, and other forms was accurate and complete. If the debtor is filing a chapter 7 case, the trustee will be determining if there are any assets that can be liquidated to generate at least a small amount of money to pay back to unsecured creditors. If the debtor is filing a chapter 13 case, the trustee will be tasked with making sure the debtor’s reorganization plan complies with the Bankruptcy Code. In the majority of cases, this is the only actual appearance – there are usually no hearings before a judge at all in a chapter 7 case, and generally, the only court appearances in a chapter 13 case are handled by the attorney only.
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