1. What is bankruptcy, and how can it help me?

Answer: Bankruptcy is a legal process under federal law designed to provide financial relief to individuals who are unable to manage their debts. Filing bankruptcy may stop many collection activities and may allow you to eliminate certain debts, reorganize your finances, protect certain property, or repay debts over time. For individuals, Chapter 7 and Chapter 13 are the two most common types of bankruptcy.

2. What is the difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy?

Answer: Chapter 7 generally allows a qualifying debtor to receive a discharge of eligible debts without making payments under a multi-year repayment plan. A Chapter 7 trustee may administer property that is not protected by applicable exemptions.

Chapter 13 allows an individual with regular income to reorganize debts through a court-approved repayment plan, generally lasting three to five years. Chapter 13 may allow a debtor to keep property, catch up on delinquent mortgage or vehicle payments, and address debts that may be difficult to resolve in Chapter 7.

3. How do I know whether Chapter 7 or Chapter 13 is right for me?

Answer: The answer depends on your income, expenses, debts, assets, home and vehicle equity, mortgage or vehicle arrearages, prior bankruptcy filings, and financial objectives. Chapter 7 may be appropriate for someone seeking a relatively prompt discharge of unsecured debts. Chapter 13 may be appropriate for someone who needs time to catch up on secured debts, wants to retain property that might otherwise be at risk, or does not qualify for Chapter 7. A bankruptcy attorney can evaluate your circumstances and explain which chapter may provide the greatest benefit.

4. What happens to collection activities when I file bankruptcy?

Answer: Filing a bankruptcy petition generally creates an automatic stay. Subject to important exceptions and limitations, the automatic stay prohibits creditors from continuing many collection activities, including collection calls, lawsuits, wage garnishments, repossessions, and certain foreclosure proceedings. A creditor may ask the bankruptcy court for permission to proceed by requesting relief from the automatic stay.

5. Can bankruptcy stop a foreclosure on my home?

Answer: A bankruptcy filing may stop or delay a foreclosure through the automatic stay if the bankruptcy case is filed before certain events have occurred. Chapter 13 may provide an opportunity for a homeowner to cure delinquent mortgage payments over time while maintaining required ongoing payments. Because foreclosure rights and deadlines can be time-sensitive, anyone considering bankruptcy to protect a home should obtain legal advice as early as possible.

6. Can bankruptcy stop a wage garnishment?

Answer: In many cases, yes. The automatic stay generally stops most wage garnishments after a bankruptcy case is filed. A Chapter 7 discharge may permanently eliminate the debtor’s personal liability for the underlying debt if it is dischargeable. Different rules may apply to certain obligations, such as domestic support obligations, and the particular circumstances should be reviewed with an attorney.

7. Will I lose my house, car, or other property if I file bankruptcy?

Answer: Not necessarily. Bankruptcy laws provide exemptions that may protect certain property from creditors and a bankruptcy trustee. Whether you can retain a particular asset depends on its value, the amount of any liens against it, available exemptions, the type of bankruptcy filed, and other circumstances. Chapter 13 may provide additional options for debtors who have property they want to retain.

8. What debts can be eliminated in bankruptcy?

Answer: Many unsecured debts may be discharged, including credit-card debt, medical bills, personal loans, and certain judgments. However, not every debt is dischargeable. Certain taxes, domestic support obligations, many student loans, and debts arising from specified types of misconduct may not be discharged. Whether a particular debt can be eliminated requires consideration of the nature of the debt and the applicable provisions of the Bankruptcy Code.

9. Are student loans dischargeable in bankruptcy?

Answer: Student loans are treated differently from most ordinary unsecured debts. Many educational loans are not discharged unless the debtor establishes the legal requirements for discharge, which may require a separate proceeding in the bankruptcy court. Because the law concerning student-loan discharge has developed over time and the result depends heavily on individual circumstances, debtors should obtain advice regarding their particular loans.

10. What is the Chapter 7 means test?

Answer: The means test is used in many consumer Chapter 7 cases to determine whether the debtor qualifies for Chapter 7 relief. It considers income, household size, and, when necessary, certain permitted expenses and deductions. Having income above the applicable median income does not automatically prevent someone from filing Chapter 7 because additional calculations and exceptions may apply.

11. How does a Chapter 13 bankruptcy repayment plan work?

Answer: In Chapter 13, the debtor proposes a repayment plan that generally lasts three to five years. The debtor ordinarily makes payments to a Chapter 13 trustee, who distributes funds to creditors according to the confirmed plan. The amount that must be paid depends on several factors, including income, expenses, the types of debts owed, the value of the debtor’s property, and the requirements of the Bankruptcy Code. A debtor does not necessarily have to repay every unsecured debt in full.

12. What is the meeting of creditors, or “341 meeting”?

Answer: Debtors filing Chapter 7 or Chapter 13 generally must attend a meeting of creditors conducted under Section 341 of the Bankruptcy Code. The bankruptcy trustee places the debtor under oath and asks questions concerning the bankruptcy petition, assets, debts, income, expenses, transfers, and other financial matters. Creditors are permitted to attend and ask appropriate questions, although creditors frequently do not appear in routine consumer cases.

13. How long does bankruptcy take?

Answer: A straightforward Chapter 7 case often results in a discharge approximately three to four months after filing, although a case may remain open longer if assets must be administered or other issues arise. A Chapter 13 case generally involves a repayment plan lasting three to five years, with the discharge ordinarily entered after successful completion of the plan and satisfaction of the applicable statutory requirements.

14. Will bankruptcy ruin my credit forever?

Answer: No. Bankruptcy can have a significant effect on credit, but it does not prevent someone from rebuilding credit in the future. A Chapter 7 bankruptcy can generally remain on a consumer credit report for up to ten years from the filing date, while a Chapter 13 bankruptcy is generally reported for a shorter period under current credit-reporting practices. The ability to obtain new credit after bankruptcy depends on the debtor’s overall financial circumstances and the requirements of individual lenders.

15. When should I talk to a bankruptcy attorney?

Answer: It is often beneficial to consult a bankruptcy attorney before taking actions that could affect your rights, such as withdrawing retirement funds, transferring property, paying substantial amounts to selected creditors, allowing a foreclosure or repossession to proceed, or filing bankruptcy without understanding the consequences. An attorney can review your income, debts, property, recent financial transactions, and objectives; determine whether Chapter 7 or Chapter 13 may be appropriate; and explain the advantages, disadvantages, and alternatives before you make a decision.

Important Notice: These Frequently Asked Questions are intended to provide general educational information about Chapter 7 and Chapter 13 bankruptcy and are not legal advice. Bankruptcy law is complex, and the outcome of any case depends upon its particular facts and applicable federal and state law. Reading this information does not create an attorney-client relationship. You should consult a qualified bankruptcy attorney regarding your individual circumstances before taking or refraining from any action.

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