Q: What are the common reasons for needing a bankruptcy?
A: Loss of income resulting from layoff or failed self-employment business, large medical expenses resulting from injury or illness, divorce or separation, and overspending/high interest rates/late payment penalties on credit cards.
Q: Do creditors have to stop harassing me if I file?
A: Yes, they do! By law, all actions against a debtor must cease once a petition in bankruptcy is filed. Creditors cannot initiate or continue any lawsuits, wage attachments, collection letters, or even telephone calls seeking payment from you.
Q: Can I be fired as a result of a bankruptcy?
A: No! U.S.C. Sec. 525, prohibits any employer from discriminating against you because you filed bankruptcy.
Q: What debts are discharged by a bankruptcy?
A: Generally speaking, all unsecured debt (as opposed to secured debt, such as mortgage or car loans) will be discharged with the following exceptions:
- Most taxes and student loans
- Debts incurred to pay non-dischargeable taxes
- Domestic support and property settlement obligations
- Most fines, penalties, forfeitures, and criminal restitution obligations
- Debts for death or personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs
- Certain debts which are not properly listed in your bankruptcy papers
Q: What is a Chapter 7 Bankruptcy?
A: Chapter 7, sometimes referred to as “straight”, or “liquidation” bankruptcy, is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. The main purpose of bankruptcy law is, in fact, to give to a person who is hopelessly burdened with debt a ‘fresh start’ by wiping out his or her debts.
Q: What is a Chapter 13 Bankruptcy?
A: Chapter 13 Bankruptcy, also known as a “reorganization bankruptcy”, is filed by debtors who have enough disposable income to pay off a portion, generally at least twenty percent, of their debts over a period of three to five years. This type of bankruptcy makes sense for those who have, and want to keep, property with a fair market value in excess of the statutory exemption limits (for example, the exemption limit for jewelry is $1,350; for household goods, furnishings, and appliances it’s $10,775).
Q: Didn’t the bankruptcy laws change just recently?
A: The new bankruptcy law (The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) added several requirements for debtors, chief among them a “means test” that limits the amount of income a Chapter 7 debtor may have (if over the applicable limit, a debtor may have to proceed under Chapter 13) and the requirement that the debtor complete credit counseling before qualifying for a discharge of debts.
Q: Don’t the new bankruptcy laws make it too hard to file?
A: While there are a few more ‘hoops to jump through’ under the new laws, the vast majority of people considering bankruptcy relief, especially those with modest incomes or significant mortgage balances on their homes, will still prove to be eligible for a full discharge of their debts under Chapter 7.
Q: What is the credit counseling requirement under the new law?
A: Prior to filing bankruptcy, a debtor is required to take a credit counseling class by an approved credit counseling provider (there is a list of approved counseling providers in each district – currently about 33 in the Western District of Pennsylvania). This class does not require in-person attendance – it can be completed online or even over the phone. Within 45 days after the creditors’ meeting, you will need to do a second credit counseling session (called “pre-discharge”) to qualify for your discharge. It too can be completed online or over the phone.
Q: What are the main steps or procedures in a bankruptcy and how long does the whole process take?
A: Please click on the link, at the top or to the left of this page, for ‘What to Expect’.
Q: How will one spouse be affected by a bankruptcy filing by the other?
A: A wife or husband will not be affected by a spouse’s bankruptcy if he or she is not responsible (did not sign an application, agreement or contract) for the other’s debt. If they have a supplemental credit card then they probably did sign such a document and so probably will be responsible for that particular debt.
Q: Who will know if I file?
A: Although bankruptcy filings technically are public records (that is, available for viewing either by in-person application to the bankruptcy clerk of courts or via a paid subscription to the bankruptcy case filing system database), as a practical matter your friends, family, neighbors etc. will have no way of knowing.
Q: Can I keep one or two credit cards?
A: Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are discharging a credit card debt they will cancel the card unless you reaffirm it (“Reaffirming” simply means that the debtor signs a written contract agreeing to continue to be liable for the reaffirmed debt even after receiving a discharge of all other debts). Even if you have a zero balance the credit card company might cancel the card, based upon a clause in the application/cardholder agreement allowing them to do so in the event of bankruptcy.
Q: What assets can I keep?
A: You may claim certain of your property as exempt under federal law (for example, the exemption limit for jewelry is $1,350; for household goods, furnishings, and appliances it’s $10,775). A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors. In the vast majority of cases, however, the debtor has no assets above these statutory exemption limits, meaning that the debtor may “exempt”, and therefore keep, all of his assets.
Q: If this isn’t my first bankruptcy, is there a limit to how soon I can file again?
A: A person can file Chapter 7 again if it has been more than 8 years since he or she received a discharge under the previous Chapter 7 bankruptcy.
Q: How long will a bankruptcy stay on my record?
A: The Credit Bureaus will record your bankruptcy and it will remain on your credit record for 10 years.
Q: Won’t it be difficult to ever get credit again?
A: No! A number of banks now offer “secured” credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment, with the credit limit generally increasing as the debtor, over time, proves his or her ability to pay the debt. Car loan lenders work with several financing partners to back loans with all types of credit risk, including bankruptcies. A bankruptcy becomes less significant the further in the past it is. As a practical matter, if you are already (or will soon be) behind on car payments, credit card accounts, etc., you will probably be a better credit risk after bankruptcy than you are right now.