Bankruptcy FAQ

Bankruptcy is a federal court process in which all or some of your debts are "discharged," meaning you are no longer liable for them. Many people file bankruptcy because they are facing foreclosure, wage garnishment or harassment from debt collectors. When you file bankruptcy, your creditors (the people and companies you owe money to) must halt all attempts to collect on your debts unless they are given permission by the court. Bankruptcy is listed on your credit report for 10 years, and this may have a negative impact on your ability to get new credit. Home and auto loans and credit card applications commonly ask if you've ever declared bankruptcy, and your answer may be a factor in the lender's decision.

• What are the Two Types of Personal Bankruptcy?
• Do I Have to List All of My Property?
• How Does Bankruptcy Relieve Me of My Debts?
• Do I Have to Go to Credit Counseling?
• Being harassed by collection agencies?
• Will bankruptcy affect my job?
• Will my friends and neighbors know I filed bankruptcy?
• Will I be able to get new credit after filing for bankruptcy?
• Does my spouse have to file?
• What will happen if I list a co-signed debt in my bankruptcy filing?
• What does reaffirming a debt mean?
• Am I responsible for future debts?

1. In most cases, you can file Chapter 7 bankruptcy once every eight years.

In order to file a Chapter 7, you must meet specific income requirements. If your income exceeds your state's annual household median income and you can make payments of at least $100 a month for a period of five years, you will be forced to file Chapter 13.

You must also be current on your home and car payments if you choose to keep them. If you are behind, a Chapter 13 might be better for you.

After submitting paperwork and a report about your debts to the court, a bankruptcy trustee will be assigned to the case. You will be required to attend a short "meeting of creditors." Despite the name, creditors rarely show up in person. At the meeting, you will be asked a series of standard questions about your filing by the trustee. In most cases, you can keep the property you put up as collateral by paying the creditor the amount owed. If you are current with your payments on a secured loan, you can elect to deal with the secured debt outside the bankruptcy through a reaffirmation agreement. If the court agrees, you keep the property as long as you keep up the payments. If no one objects to your discharge (objections are rare), you will receive your discharge order in the mail in three to five months, and you will never have to pay those debts again.

Under Chapter 13 bankruptcy, you propose a plan to repay your creditors over time. A Chapter 13 filing will allow you to catch up on your mortgage or car loan payments. If you are behind on your mortgage or car payments, owe federal taxes (some tax debt cannot be discharged), or have substantial nonexempt property and have a good source of future income and want to pay off your debts, then a repayment plan might interest you. Under a Chapter 13 plan, you repay your debts by making monthly payments to the bankruptcy trustee for a minimum of three years and a maximum of five years. Your initial filing requires you to present the court with a plan for repaying your creditors. A trustee is appointed and in most cases, you must begin making payments under the plan within 30 days of filing. Following the meeting of creditors, a confirmation hearing is held. When you have completed the repayment plan, you will receive your discharge and the case will be formally closed.

2. You must list all existing credit cards. Failure to list all accounts is a serious federal crime. Creditors can be added up to two weeks before discharge.

Yes. You must list all of your assets including your home, cars, life insurance policies, pension plans, IRAs and 401(k) plans, and any property for which you are a co-signer. However, the court cannot take your pension or attach your wages.

Chapter 7 bankruptcy is also called "liquidation" or "reorganization." Under Chapter 7 of the U.S. Bankruptcy Code, the bankruptcy court has the power to relieve petitioners of responsibility for most or all of their debts that are not secured by collateral or property. This is called a "discharge" of your debts. Certain debts cannot be eliminated. Certain property you own is protected during bankruptcy. This is called "exempt" property. Exemption laws vary from state to state. Before your liability for the debt can be removed, the court must sell all your nonexempt property (if any) and distribute the proceeds among your creditors.

3. Bankruptcy will discharge most of your debts and keep creditors from seeking any money you owe them. The bankruptcy court requires you to disclose all the debts you have on the date you file your case. Bankruptcy will not remove certain nondischargeable debts, such as:

• Child support and alimony, or debts owed from a divorce decree or settlement
• Debts incurred for personal injury or death caused by you while driving under the influence of alcohol or illegal drugs
• Civil restitutions or damages rewarded for willful or malicious personal actions causing personal harm or death
• Student loans
• Credit card purchases, loans or cash advances taken within 90 days of your bankruptcy filing
• Fines and penalties imposed for law violations, such as traffic or criminal restitution
• Income taxes from the past three years and other tax debt
• Criminal restitution from illegal activities such as embezzlement, larceny, fraud, or willful or malicious injury to another person's property
• Debts not included in your bankruptcy filing (you must include all your debts, but if you forget to list one, it becomes nondischargeable)

4. Yes, credit counseling is mandatory. You must take part in a court-approved credit counseling program no more than 180 days prior to filing, and provide a certificate that you have completed the counseling session. In addition, you must complete a financial management instruction course before you can receive a discharge.

5. Filing bankruptcy will immediately stop most collection efforts against you. This injunction, called an automatic stay, is a primary benefit of bankruptcy. Creditors can't take further action against you unless they obtain permission from the bankruptcy court.

6. The Bankruptcy Code specifically prohibits employers from discriminating against current employees who file bankruptcy. The law applies to private as well as governmental employers. However, if you look for a new job in the future while the bankruptcy is still listed on your credit report, potential employers may choose to reject you.

7. While bankruptcy is a matter of public record, it's not likely that your friends and neighbors will know about your bankruptcy unless you tell them. Even if they do find out, bankruptcy does not carry the social stigma it did in past decades. Today, most people recognize that bankruptcy laws allow you to make a fresh start and get out from under crushing debt so that you can provide basic needs for yourself and your family.

8. A Chapter 7 bankruptcy will stay on your credit report for 10 years. However, it should be possible to qualify for a secured credit card if you deposit money in a bank account to guarantee the card. In addition, you may be able to qualify for a mortgage or car loan at a higher-than-average interest rate. When shopping for new credit following bankruptcy, scrutinize new offers carefully, because you could be tricked into signing for outrageously high-interest loans with unfair fees and terms such as balloon payments. Accepting the wrong loan or credit offer could cause you to fall into serious debt again.

9. In most cases, no. However, your spouse still will be liable for the full amount of any joint obligations you have, even if your responsibility for paying them is discharged by the bankruptcy.

10. You must list debts for which you have co-signed. Your responsibility to pay will be removed, but co-signers will still be held responsible for the entire debt. If the co-signed debt is not delinquent, you may be able to reaffirm it as part of your bankruptcy filing.

11. When you reaffirm a debt, you remove that debt from the protection of bankruptcy, and you promise to repay the debt. If you fail to repay the debt, the creditor can take action against you to recover the property that was given as security, and you remain personally liable for any remaining debt. Reaffirmation agreements are strictly voluntary.

12. You are responsible for paying all bills incurred post-petition (after the bankruptcy is filed), including your mortgage, car loans/leases, rent, utilities, etc., unless you are surrendering (giving back) the property.

Contact an Experienced Bankruptcy Lawyer Today

Stanton M. Lacks, Attorney at Law, has 30 years of successful legal experience under his belt, serves clients throughout Northeast Philadelphia, and Bucks County from his offices in Bensalem, Pennsylvania. Contact Mr. Lacks to schedule your free initial consultation - and find out if bankruptcy is a good solution for your money troubles.