BANKRUPTCY FAQs

These are general responses and do not constitute legal advice. Everyone’s circumstances are different. If you want advice on your specific situation, you should contact my office for a free consultation.

The answer to this question is immediately! The earlier you contact an attorney, the more

options you will have. Often a meeting with an attorney early on will not result in immediate action, but will allow you and your lawyer to plan, strategically, for what is coming. An early meeting will also allow you to fully understand your situation and the possible best and worst case scenarios. Once you have a full understanding of your situation, you will be better able to make the best choices for you and your family.

Every financial situation is different, and whether you qualify for bankruptcy will depend on several factors. These factors include the amount of your income and the value of your assets. The type of bankruptcy case you file (Chapter 7, Chapter 11 or Chapter 13) will further influence the factors that determine eligibility. To determine whether you qualify, you must first determine which type of bankruptcy is right for you and your situation. To learn more about the different types of bankruptcy, read the FAQs below.

A Chapter 7 bankruptcy is the most common type of bankruptcy. Chapter 7 is a “fresh start” not a “free start” and it allows you to wipe out almost all of their debt (with a few limited exclusions, including certain taxes, student loans and obligations to a child or former spouse) in exchange for giving up property that is not “exempt” under law. 

In Chapter 7, you are allowed to keep all of the assets that are deemed “exempt” under applicable law. In most cases, proper bankruptcy planning will allow you to keep most, if not all, of your assets (including, but not limited to, your house and car). If you do not stand to lose any assets, then Chapter 7 is advisable for you.

If it turns out that you might potentially lose an asset in a Chapter 7 case, then you have the option of filing a Chapter 13 bankruptcy and keeping all of your assets. 

Additionally, in order to qualify for Chapter 7, you must complete a “means test” which reviews your income over the six month period immediately prior to the bankruptcy filing, as well as many of the your expenses. If the “means test” shows that you have more than a modest amount of “disposable income” at the end of the month (monies left over after paying all of the family obligations), then you will not qualify for Chapter 7. At that point the debtor has the option of filing a Chapter 13 bankruptcy.

In a Chapter 13 bankruptcy, you repay some or all of your unsecured debts through a repayment plan (lasting three or five years) and are able to keep all of your assets.

The Chapter 13 plan is administered by a Trustee to whom payments are made over the life of the plan, and who then makes the payments to your creditors. How much has to be paid to creditors requires a detailed analysis of your assets and income, and can be as little as 5% or as much as 100%.

Chapter 13 can also be used to if you are behind on your mortgage and want to save the family home. This is done by allowing you to cure the arrears (the amount you are behind) on your mortgage by repaying the arrears through a five year plan consisting of 60 monthly payments to a Trustee. If you can prove to the Bankruptcy Court that you can make the proposed payments, you can force the mortgage company to accept the plan. 

Sometimes, however, the arrears on the mortgage are so high that curing the arrears over a 60 month plan is not feasible as the payment per month would be too high. In such

cases, you can propose a plan that provides for a loan modification on their mortgage which would allow for a more affordable payment.

Chapter 11 bankruptcy is a reorganization proceeding used by businesses, including corporations, partnerships and sole proprietors. Chapter 11 bankruptcy allows businesses

to continue to operate without the day-to-day burden of their pre-existing debt

obligations, giving them the breathing room necessary to develop a plan to restructure their debt.

While in Chapter 11, the business remains in control of its assets and operations as a “debtor-in-possession” while gaining many of the powers and responsibilities of a bankruptcy trustee. Through this continuation of management (with enhanced powers that arise under bankruptcy law), troubled business can solve otherwise seemingly unsolvable problems.

In a typical Chapter 11 case, the business owner proposes a plan of reorganization which it distributes to its creditors for approval. The bankruptcy court will typically approve the plan of  reorganization (sometimes over the objection of some creditors) as long as certain factors are met, including, but not limited to, that the plan must be feasible, it must be made in good faith, and serve the best interests of the creditors.

No, you should consult an attorney as soon as you find yourself in trouble. In order to file

bankruptcy you have to pass a “means test” which is based upon your income over the six months immediately prior to your filing bankruptcy. If you wait until you are back to work, you may find that your new income renders you ineligible for some forms of bankruptcy. Timing is important, so your best bet is to consult with an attorney as soon as the trouble begins so that you can avoid any potential obstacle to bankruptcy.

One of the few assets that you have that is almost universally protected from your creditors is your properly qualified retirement accounts. This means that the monies in your retirement accounts cannot be touched by creditors or even by a bankruptcy trustee. Many times people try to “right the ship” by  depleting their retirement accounts to pay debt, only to wind up going bankrupt anyway. In these situations, people have unknowingly squandered a valuable asset that they would have been able to keep. Before you tap into your pension you should consult with an attorney to determine other potential causes of action that will allow you to preserve your retirement accounts.

No. You are responsible only for your own debts. Just because you are married, you are not on the hook for the debts that your spouse incurred that are in his or her own name. You are only responsible for your spouse’s debts if you are a co-obligor on the debt, meaning that the obligation is also in your name. For example, if your mortgage is in the name of both you and your spouse, then you are both liable on the debt. However, if your spouse has a credit card in his or her name only, then you are not liable for that debt.

You have the option of filing on your own, or filing jointly with your spouse. Many times couples will file bankruptcy together because there are many shared debts (mortgages, credit cards, etc.), but sometimes filing together is not advisable. If you are in financial difficulty but your spouse is not (for example, if all of the credit card debt is in your name) then it may be wiser for you to file alone. It may also make sense to file alone if either you or your spouse has assets that would not be protected in a bankruptcy filing.

Bankruptcy will wipe out (or discharge) almost all of your debts. There are a few classifications of debts that cannot be wiped out in bankruptcy, including, but not limited to, student loans, certain taxes, debts for alimony or child support and debts arising from “willful or malicious” harm.

Bankruptcy, like any credit event, will remain on your credit report for ten years. However, if you take some basic steps to reestablish credit after you file for bankruptcy, you can be in good credit shape in three to four years. Also, in many instances you will be able to obtain credit immediately after a  bankruptcy, but in those early days the interest rate might be less than optimal.

Yes. Immediately upon the filing of a bankruptcy all creditor actions against you to collect the debt (including telephone calls) must cease. This is because at the moment that you file for bankruptcy, an automatic stay is put in place that prohibits almost every action against you. If there are any lawsuits pending against you (a foreclosure action, or a lawsuit from a credit card company) they are immediately stopped by the filing of your bankruptcy case. If your wages are being garnished, the garnishment must cease once you’ve filed for bankruptcy. Often these issues are resolved by the filing of the bankruptcy, and do not recur after the bankruptcy case is over.

That depends on a number of factors that are specific to your circumstances, but the general answer is that in most instances you are able to keep your home, cars and many other assets when you file bankruptcy. Additionally, there are different forms of bankruptcy that are specifically designed to allow you to keep your assets when filing bankruptcy.