Frequently Asked Bankruptcy Questions
I understand the Federal Bankruptcy Laws dramatically changed October 17th, 2005. How does the law change affect me?
It is important to speak with a qualified bankruptcy lawyer. The new laws are complex and knowledge of the new rules is required. Bankruptcy is still an available option for most, if not all, honest individuals facing overwhelming debt or foreclosure.
What is bankruptcy?
Bankruptcy is a legal proceeding under Federal law where a person is released from paying debts by declaring bankruptcy and turning all non-exempt property over to the court's Trustee.
Who can file bankruptcy?
Any person who resides in, does business in, or has property in this country can file bankruptcy.
Should I stop paying creditors once I decide to file for bankruptcy?
Yes. Debts that can be discharged in bankruptcy such as credit card and medical obligations, should not be paid once an informed decision is made to file a Chapter 7 petition. Monthly bills such as rent, mortgage payments, telephone, and utilities, however, still must be paid.
Will filing for bankruptcy stop harassing phone calls from bill collectors?
When you file either kind of bankruptcy, something called an "automatic stay" goes into effect. The automatic stay prohibits virtually all creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.
How long does a bankruptcy remain on my credit report?
The fact that an individual filed a bankruptcy can remain on the credit report no longer than 10 years under provisions of the Fair Credit Reporting Act.
How much does it cost to file?
In Massachusetts, the filing fee is $335.00 for individual, joint and business petitions under Chapter 7, or $310.00 for Chapter 13.
What is the difference between Chapter 7 and Chapter 13?
In Chapter 13, the debtor pays a portion of non-secured debt and all of the secured and priority debt over a period of 3 to 5 years. The debtor is allowed to keep both exempt and non-exempt property. In Chapter 7, the debtor is not required to pay any dischargeable, debt and is not allowed to keep any non-exempt property. Whether to file under Chapter 7 or Chapter 13 should be discussed with an attorney.
Where is a bankruptcy filed?
A bankruptcy petition is filed in the United States District Court in the district where the debtor lives or does business.
How long does it take?
Chapter 7's are generally very fast. The court will schedule a creditor's meeting in approximately 30 days after the bankruptcy petition has been filed. At the meeting, the trustee will ask you about the information contained in your bankruptcy schedules. The meeting may last only a few minutes, and is generally the only "court" appearance you will have to make. In approximately 120 days you will receive your discharge and the final decree will follow a few weeks later. Chapter 13's and 11's take longer. Your attorney can give you a rough estimate of the time involved.
What do I need for the initial meeting with my attorney?
Clients should bring in these four things: 1) a list of assets and liabilities, 2) a list of creditors showing the amount due to each creditor, 3) a list of income and expenses, and 4) last two years tax returns. We will discuss your financial situation and determine if bankruptcy is appropriate. If it looks like bankruptcy is appropriate, I will provide you with forms to fill out. When this is complete, the petition and schedules will be prepared and filed. 5) Evidence of last 6 months of income.
I am in debt because I've been irresponsible in using credit. Will I be denied a debt discharge because I don't have a good excuse for my behavior?
No. The bankruptcy system does not ask whether your debt is due to unforeseen circumstances that were no fault of your own, or whether you were living "over your head."
What does the term "fresh start" mean in association with bankruptcy?
By discharging your debts in a Chapter 7 bankruptcy you can receive a "fresh start", and move on to rebuild your financial and personal life, without the worry of being overwhelmed by an unbearable load of debt.
Is my primary residence protected?
In Massachusetts, if you own your own home and it serves as your principle residence, you may be able to protect it against the claims of creditors and/or a forced sale by filing a Declaration of Homestead . Speak with a qualified bankruptcy attorney to determine the status of your Homestead Exemption should you file bancruptcy.
Will I lose my job?
No. Bankruptcy laws prohibit discrimination based upon a debtor filing for protection under the bankruptcy laws.
Can I go to jail if I file bankruptcy?
No. There are no debtor's prisons in the United States.
Will bankruptcy stop a wage attachment?
Will bankruptcy stop a judgment?
Possibly. Most civil judgments are stopped by bankruptcy.
Will bankruptcy wipe out all my debts?
Yes, with some exceptions. Bankruptcy will not normally wipe out: (1) money owed for child support or alimony, fines, and some taxes; (2) debts not listed on your bankruptcy petition; (3) loans you received by knowingly providing false information to a creditor who reasonably relied on it in making you the loan; (4) debts resulting from "willful and malicious" harm; (5) student loans owed to a school or government body, except if: the loan first became due more than 7 years before the bankruptcy was filed or; the court decides that payment would be an undue hardship; (6) mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).
Will I have to appear in Court?
In most bankruptcy cases, you only have to go to a proceeding called the "Meeting of Creditors" to meet with a bankruptcy trustee and any creditor who chooses to come. This meeting is usually a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Upon the filing of a Chapter 7 petition, a Meeting of Creditors is scheduled by the Court, which takes place one to two months after the petition is filed. If the petitioner is represented by counsel, the attorney will sit with the petitioner and provide assistance when needed. The trustee will tape record this meeting as he/she swears in the debtor. He/she will ask if the debtor read the petition before signing it, and if the signature on the petition belongs to the debtor. Additional questions such as the following may be asked: 1) How did you get into financial trouble? 2) During what period of time were your debts accrued? 3) How did you value your house (if applicable)? 4) Do you have the right to sue anybody? 5) Does anyone owe you money? 6) Do you expect to receive any moneys in the near future from tax returns, inheritance, or any other source? 7) Have you transferred any real or personal property to others within the last year? These questions are designed to help the trustee determine if the debtor possesses assets that can be distributed to creditors, and if the debtor is honest in filing the petition in good faith. Creditors may also appear at the meeting to ask questions, but this rarely happens. The Meeting of Creditors usually takes no more than five minutes to complete.
What happens after the Meeting of Creditors?
In "no asset" cases (the usual Chapter 7 where all assets are exempt), a few months after the Meeting of Creditors, the Court will grant a discharge. At this point the case ends with the debtor free and clear of dischargeable obligations listed in the petition.
Can I use bankruptcy to stop a foreclosure?
Yes, but there are limitations to this strategy. A chapter 7 will only delay a foreclosure for a short while until the creditor is able to file a motion for relief from the bankruptcy stay. Unless you are able to cure the default within a month or so of the bankruptcy, filing a chapter 7 probably won't do you much good. A chapter 13 will allow you to pay the past due mortgage payments over a period of 3 years but you must still be able to make the regular monthly payments. If you can't do this, a chapter 13 probably won't work.
Can I discharge my student loans?
Until recently, student loans were dischargeable for undue hardship or if payments were due for at least 7 years. A late 1998 amendment to the bankruptcy code has eliminated the 7 year discharge provision entirely. Now student loans are not dischargeable except for undue hardship. If you can convince a judge that having to pay the student loan would impose an undue hardship on your ability to get a fresh start, the judge can order that the student loan debt be discharged. This is not an easy thing to do since most people can pay their student loans once their credit card debt, medical bills, etc. are discharged.
Can I discharge child support?
What is a reaffirmation agreement?
A reaffirmation agreement is simply an agreement to pay a debt that existed at the time you filed bankruptcy. Usually debtors are willing to enter into reaffirmation agreements on secured debts such as homes and automobiles. Most credit cards, medical bills and other debts are "unsecured" and debtors generally don't enter into reaffirmation agreements on those kinds of debts. Typically, the creditor provides your bankruptcy attorney with a reaffirmation agreement for your review and signature. The one big downside to reaffirmation agreements is that you remain personally liable for the debt. If you later default on your payments you could lose the property and become personally liable for any deficiency. Obviously, you will need to give careful consideration to your ability to make the payments and the potential consequences of a default. The bottom line: If you don't need the property and can't make the payments don't enter into a reaffirmation agreement.
What are the federal exemptions?
The federal exemptions can be found at 11 U.S.C. ß 522. There are numerous exemptions, but the most important and widely used ones are as follows: (Note: The federal exemption amounts listed below were adjusted on April 1, 2001 pursuant to 11 U.S.C. ß104. You will need to double these amounts for married couples filing jointly). (d)(1) Homestead - $18,450.00 (d)(2) Motor vehicle - $2,950.00 (d)(3) Household goods - $9,850.00 (d)(4) Jewelry - $1,225.00 (d)(5) Wildcard (unused homestead) - $9,250.00 (d)(6) Tools of the trade - $1,850.00 (d)(8) Loan value of any life insurance - $9,850.00 (11)(D) Personal injury award - $18,450.00 There are other exemption for retirement accounts, health aids, etc., but these are the most commonly used exemptions with values that most people need to be concerned about. The selection of exemptions can be very tricky and your attorney will help you decide whether you should select the state exemptions or the federal exemptions for your particular bankruptcy.
What can be done about judgment liens?
A judgment lien is a lien obtained as a result of a money judgment and recorded against property such as a house or a car. If the lien applies to exempt property, it may be eliminated. To avoid a judgment lien, a motion must be filed in addition to the Chapter 7 petition. Liens related to child and spousal support judgments may not be avoided.
What do we do if someone in bankruptcy owes us money?
In a chapter 7 no-asset case do not file a claim unless requested to do so by the court. In a chapter 7 asset case you will receive a claim form, and a notice, setting a date to file the claim. In a chapter 13 case, a proof of claim must be filed within 90 days of the 341 meeting date.