Bankruptcy - Frequently Asked Questions

What is Bankruptcy?

It is a federal law which allows individuals to have certain debts forgiven. The law is designed to help consumers who sometimes simply do not have the ability to meet their repayment requirements. Bankruptcy laws are based on forgiveness rather than punishment.

What is the Automatic Stay?

Once you file your bankruptcy petition, the automatic stay goes in to effect. The automatic stay stops creditors from trying to collect any debt from you. Further, the automatic stay stops creditor phone calls, letters, wage garnishments, lawsuits, and any other scare tactic used by creditors of debt collection agencies.

What is a Discharge?

Once the court grants the bankruptcy, the consumer receives a discharge from the court. A discharge is a legal release from debts. Creditors are left with no legal resource to contact you or pursue debts listed in the bankruptcy documents.

What is the difference between Chapter 7 and Chapter 13 Bankruptcy Petitions?

There are two ways for the typical consumer to file for bankruptcy, Chapter 7 is the most common type of bankruptcy. It allows a consumer to discharge debts completely through a relatively short process. Under Chapter 13, a petitioner is given a change to rearrange their financial affairs and repay just a portion of your debts. Both Chapter 7 and Chapter 13 Bankruptcy can help protect assets, give you leverage with creditors, and provide you with breathing room and a fresh start.

What is Chapter 7 Bankruptcy?

Chapter 7 is the most common type of bankruptcy. A discharge under Chapter 7 deletes all qualifying debts which includes credit cards, medical bills, and most other debts. In chapter 7 there is no repayment for most unsecured debts. In most Chapter 7 cases the consumer keeps all their property which may include cars and/or real property. The process takes roughly 3-4 months to complete. After the bankruptcy is over, the consumer may reaffirm certain debts in order to keep certain secured property.

What is Chapter 13 Bankruptcy?

Chapter 13 provides consumers with breathing room and a new plan to repay creditors a portion of owed debt over time. Chapter 13 is designed for consumers who make sufficient income to pay living expenses but are currently unable to meet all their obligations. In chapter 13, living expenses are calculated first and the remainder us used to pay towards outstanding debt. The plan is based on your ability to repay creditors. Chapter 13 is appropriate for consumers with assets over the exemption amounts, or non-dischargeable debts.

Do I have to sell everything I own under a Chapter 7 Bankruptcy?

No, in 99% of Chapter 7 cases an individual does not have to sell anything they own to receive a discharge of debt. Look at the exemptions page for a better idea of property you can keep under Chapter 7.

What is the Means Test?

In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Under the BAPCPA, Congress established new rules for individuals seeking to file bankruptcy. Among these rules was a test based on a mathematical formula for determining whether or not an individual qualifies for a Chapter 7 filing. Contact a licensed Bankruptcy Attorney for more information on this formula and whether or not you qualify for Chapter 7.

Do I lose my car if I declare bankruptcy?

Most individuals under Chapter 7 are able to keep their car and other personal property.

Does bankruptcy discharge child support obligations?

No, most child support obligations are not dischargeable in bankruptcy. Are taxes dischargeable in bankruptcy? No, most taxes are not dischargeable in bankruptcy.