Chapter 7 - Personal Bankruptcy FAQ

1. Disclaimer - READ THIS FIRST!
2. What is bankruptcy?
3. Who can file bankruptcy?
4. Is it true that I can wipe out all of my bills?
5. What are the most common reasons for Chapter 7 bankruptcy?
6. Can I stop the bill collectors from calling?
7. How long after I file will the creditors stop calling?
8. I am married. Does my spouse also have to file?
9. Will I lose my job?
10. Can I go to jail if I file bankruptcy?
11. Will my employer find out about my bankruptcy?
12. What happens to my personal property, real property and other assets?
13. Can I keep my home and personal property?
14. Can I keep my car after bankruptcy?
15. Can I keep my house after bankruptcy?
16. Can I keep my credit cards after bankruptcy?
17. Will bankruptcy stop a wage attachment?
18. Will bankruptcy stop a foreclosure?
19. Will bankruptcy stop an eviction, "unlawful detainer," action?
20. Will bankruptcy stop a judgment?
21. Will bankruptcy remove a lien?
22. I am divorced. Will bankruptcy wipe-out my obligation to pay community debts?
23. I am a co-signer for a debt. How does bankruptcy affect my obligation?
24. Who notifies the creditors and bill collectors?
25. Are there any debts that I can't wipe out in bankruptcy?
26. Do I have to fill out forms?
27. Do I have to go to court?
28. What happens after I file my bankruptcy?
29. Who deals with the creditors and bill collectors during the bankruptcy?
30. What if I forget to list a creditor on my bankruptcy papers?
31. What happens to my credit rating after bankruptcy?
32. Can I get credit after bankruptcy?
33. Is there anything I should not do if I am contemplating bankruptcy?
34. If I need to file bankruptcy again, how long do I have to wait?
35. Who can help me with my bankruptcy?
36. Are there any alternatives to bankruptcy?
37. How long will a BK stay on my credit report?

1. Disclaimer:
This information deals with Chapter 7 consumer bankruptcy. Each state has its own bankruptcy laws, so you need to check with your state for details. Information dealing with Chapter 13 bankruptcy and consumer debt restructuring is not discussed in the following FAQs. The information contained in the following FAQs is provided for general information purposes only and is not intended to be a legal opinion nor legal advice nor is it intended to be a complete discussion of all the issues related to the area of Chapter 7 consumer bankruptcy. Every individual's factual situation is different and you should seek independent legal advice regarding specific information. - Return

2. What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all discharageable debts. - Return

3. Who can file a Chapter 7 bankruptcy?

• You must reside or have a domicile, a place of business, or property in the United States or a municipality.
• You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan.
• You must not have had a bankruptcy filing dismissed for cause within the last 180 days.
• It must not be a "substantial abuse" of Chapter 7 to grant the debtor relief. Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7.
• It would not be fundamentally unfair to grant the debtor relief under Chapter 7. - Return

4. Is it true that I can wipe out all my bills?
The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding.

Not all debts are dischargeable. Generally speaking, the following debts will not be discharged: taxes; spousal and child support; debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; student loans; criminal fines and penalties and forfeitures. Here is a more specific list.

Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases, if the debtor's equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation. - Return

5. What are the most common reasons for a Chapter 7 bankruptcy?
The most common reasons for consumer bankruptcy are: unemployment; large medical expenses; seriously over-extended credit; marital problems and other large unexpected expenses. - Return

6. Can I stop the bill collectors from calling?
One of the major benefits of filing for protection under Chapter 7 is that many creditor actions are stayed. This means that debt collection efforts and foreclosure is halted. - Return

7. How long after I file will the creditors stop calling?
Once a creditor or bill collector becomes aware that you have filed for bankruptcy protection, he/she must stop all efforts to collect the debt. After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditor immediately. If a creditor continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for this conduct. - Return

8. I am married. Does my spouse also have to file bankruptcy?
No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable, it might be advisable to have only one spouse file. You must be careful about filing separately if, as a couple, you own joint debt and property. See our divorce section. Return

9. Will I lose my job?
No. Bankruptcy laws prohibit discrimination based upon a debtor filing for protection under the bankruptcy laws. - Return

10. Can I go to jail if I file bankruptcy?
No. There are no debtor's prisons in the United States. - Return

11. Will my employer find out about my bankruptcy?
Under normal circumstances, unless your employer is a creditor, your employer will not know. - Return

12. What happens to my personal property, real property and other assets?
All property of the debtor at the time of the filing (and certain other property to be received in the future) becomes the property of the bankruptcy estate once bankruptcy is filed. This means that the bankruptcy trustee will take control of this property for purposes of satisfying the creditors. HOWEVER, there is certain property which is either excluded or exempt which the debtor will be able to keep. Property or asset exemption are determined based upon your situation, income and the laws of your state. The best way to determine which property to keep requires a detailed analysis of your situation. You need a good lawyer. Don't pick one that advertises in your local paper. - Return

13. Can I keep my home and personal property?
As for real property in many states, dependent upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you determine this value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity.

As for personal property, in California, you are permitted exemptions for a variety of personal property. This includes, automobiles, household furnishings and personal effects, jewelry, tools of the trade, retirement plans, unmatured life insurance, personal injury awards, earnings, animals and some other miscellaneous property. The value of each exemption and which exemptions can be used are determined by the statutory exemption scheme is selected. Again, state laws vary. See What can I keep in my bankruptcy.- Return

14. Can I keep my car after bankruptcy?
Depending upon which exemption scheme is selected, you may keep your car if your equity is equal to or less than the allowed exemption. Generally speaking, depending upon the exemption scheme selected, you may exempt as little as $1,200 or as much as $9,100. Use the Kelly Blue Book or a comparable guide to calculate your equity. Subtract the amount still owing from your Blue Book value to determine the amount of equity.

Most courts understand that you need a car to earn the money that will get you back on your feet after bankruptcy. Apply rules of common sense here. If you own vintage cars which are free and clear and worth thousands of dollars, you are probably not going to be able to keep them. If, on the other hand, you have a car worth $10,000 and you owe $8,000 on it, you will most likely keep it. Again, the need to talk to a good lawyer should be evident. Most leased vehicles have no equity and therefore are entirely exempt. If you owe money on your car, or if it is leased, you must still make the payments. In those instances you will have to redeem or reaffirm the property to keep it.

However, in some circumstances, your representative can re-negotiate the loan or the lease to get a more favorable deal for you. See What can I keep in my bankruptcy. - Return

15. Can I keep my house after bankruptcy?
Depending upon which exemption scheme is selected and depending on your circumstances, you may exempt up to $100,000 in equity. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you know the value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity. In depressed markets, liquidated properties are often valued less than what we like to think the property is worth. - Return

16. Can I keep my credit cards after bankruptcy?
You may keep your credit cards under some circumstances. Many factors must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt. - Return

17. Will bankruptcy stop a wage attachment?
Yes. - Return

18. Will bankruptcy stop a foreclosure?
Yes. However, a home is an asset usually secured by a deed of trust. The lender is entitled to apply to the court for relief from the automatic stay, the order preventing creditor action by virtue of the bankruptcy. Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. You usually have to make a deal with the lender in order to keep a home that is in foreclosure. - Return

19. Will bankruptcy stop an eviction, "unlawful detainer," action?
Perhaps. However, this will only delay the inevitable. The owner is entitled to possession of his property and at best you will be able to remain in the property until you have received your discharge from bankruptcy or the landlord obtains an order from the bankruptcy court. I must caution you that if the only reason you filed the bankruptcy is to stop an eviction, this may be considered an abuse of Chapter 7. If the bankruptcy court finds that this is true, the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you. Also, in California, laws have been passed favoring the landlords. Apparently, landlords can evict even a tenant files a BK.- Return

20. Will bankruptcy stop a judgment?
Yes. Most civil judgments are stopped by bankruptcy. - Return

21. Will bankruptcy remove a lien?
Under some circumstances once the bankruptcy proceedings have started, special motion can be filed to remove certain liens. It will take a bankruptcy court order to remove them. This is a complicated area of the bankruptcy law and an attorney should be consulted. However, here are the guidelines for removing tax liens:

You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are true:

1. The IRS has not recorded a tax lien against your property. (If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect.)
2. You didn't file a fraudulent return or try to evade paying taxes.
3. The liability is for a tax return (not a Substitute or Return) actually filed at least two years before you file for bankruptcy.
4. The tax return was due at least three years ago.
5. The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least 240 days (eight months) before you file for bankruptcy. (11 U.S.C. §§ 523(a)(1) and (7).)

22. I am divorced. Will bankruptcy wipe-out my obligation to pay community debts?
In general, you will be discharged from all dischargeable community debts in the eyes of the court. In the eyes of the creditors, it is another thing. You should discuss this with your family law attorney to understand the other implications of the filing of a bankruptcy during the pendency of a dissolution action (divorce case).

Also, remember that if you are discharged from community debts, your spouse becomes responsible for the entire balance owing on the debt. Put another way, the debt does not go away; it simply shifts from you to your spouse. Which, depending on your feelings for your spouse, might not be a bad thing.- Return

23. I am a co-signer for a debt. How does bankruptcy affect my obligation?
You will not have to pay the debt if it is dischargeable. However, the co-signer will become primarily responsible for the debt. Be sure to list the co-signer as a creditor in your schedules as they have a contingent claim against you. - Return

24. Who notifies the creditors and bill collectors?
After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditors immediately. - Return

25. Are there any debts that I can't wipe out in bankruptcy?
Yes. There are certain debts that are NOT dischargeable in bankruptcy. Generally speaking, the following debts will not be discharged: taxes; spousal and child support; debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; student loans and criminal fines, penalties and forfeitures.

Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases if the debtor's equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation. See What can I keep in my bankruptcy. - Return

26. Do I have to fill out forms?
If you file the bankruptcy yourself, you must fill out the forms. There are several forms. There could be between 30 and 60 pages in your petition, schedule and other papers filed at the time of your bankruptcy. You must follow the local and federal bankruptcy court rules in completing the forms. Preparing these forms requires an understanding of both bankruptcy law and local state law in order to enter the information correctly and accurately. The forms have to be typed and a certain number of copies must be included with the filing. Today, most attorneys use a computer system to prepare these forms because of their complexity and voluminous nature. - Return

27. Do I have to go to court?
Yes. About 30 to 40 days after you file the bankruptcy you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing, the trustee will ask questions under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will be permitted to question you. Do not worry. Your attorney will help you prepare for the hearing and will be there to represent you. Sometimes, after your hearing is over, various creditors will approach you to discuss the status of secured property or your desire to retain a credit card. Your attorney will negotiate with them, with your knowledge and approval.

You will normally not need to return to court after this hearing. However, if a creditor files a motion or an adversary action, you may have to return to court. This is the exception and only your attorney can determine if this is likely to happen. - Return

28. What happens after I file my bankruptcy?
Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 75 days after the First Meeting of Creditors. - Return

29. Who deals with the creditors and bill collectors during the bankruptcy?
Your attorney deals with your creditors. It may be the only time you ever have the luxury of saying, "You'll have to talk to my lawyer." - Return

30. What if I forget to list a creditor on my bankruptcy papers?
You are permitted to file an amendment to your schedules up to a certain time before discharge. If the amendment is timely filed, the omitted creditor is added to the bankruptcy. It is perjury to intentionally omit a creditor. However, if you do not know that a creditor exists and there are no assets for your creditors, the debt will be discharged.

This is a hassle after the fact. Be thorough and list everything when you prepare your schedules. - Return

31. What happens to my credit rating after bankruptcy?
It sucks. Plain and simple.

However, you can reestablish credit and get an "A" credit mortage three to fours years after the discharge of bankruptcy. However, it may be very difficult to get a credit card until the BK falls off of your report. For more information on restablishing your credit, please see rebuilding your credit. The bankruptcy is a judgment and will be listed for a period of up to 10 years after the discharge. - Return

32. Can I get credit after bankruptcy?
Sure. For awhile though, expect to pay through the nose in interest and fees. There is a whole new mortgage industry springing into action loaning to people with less-than perfect (read rotten) credit. Again, see our section on rebuilding your credit. - Return

33. Is there anything I should not do if I am contemplating bankruptcy?
This is a complex question and should be discussed with your attorney. Generally, however, there are three items worth mentioning:

• Under bankruptcy law, certain luxury purchases over $1000 within 60 days of the bankruptcy filing are presumed nondischargeable.
• Under bankruptcy law, cash advances agregating $1,000 within 60 days of the bankruptcy filing are presumed nondischargeable.
• Debts involving materially false financial statements are nondischargeable under certain circumstances. - Return

34. If I need to file bankruptcy again, how long do I have to wait?
You must wait 6 years to file again. If your bankruptcy was dismissed, you must usually wait for 180 days to refile. - Return

35. Who can help me with my bankruptcy?
We're just going to say it one more time: the best person to help is your attorney. When you discuss your situation with your attorney, you will need to be prepared to discuss all areas of your case. This includes each and every debt you owe and creditor you have. It is very important to list all your creditors in your bankruptcy. One of the best ways to know all your creditors is to get a Experian or other credit report about your credit history. This should list the majority of your creditors, even ones you did not know about. You should also have a post-bankruptcy budget prepared before you go to the attorney's office. This budget should contain the income and expenses you will have after you file your bankruptcy. - Return

37. How long will a BK stay on my credit report?
A Chapter 7 BK stays on your credit report for 10 years from the date the BK is discharged. However, it stays on your court records for 20 years, as public record. Return