Your Creditors

Your creditors are the companies or individuals to whom you owe money. An automatic stay goes into effect immediately after a person files, meaning that your creditors are told they can no longer try to collect your debts.

Your Employer (In Some Cases)

For the most part, your current employer won’t find out if you’ve filed. But, if you file Chapter 13 bankruptcy and wage garnishment is part of your repayment plan, the court may send an income deduction order to your employer, which will require a portion of your wages to be deducted from your paychecks and sent to the court to repay your debts. In that case, your employer will learn about your filing. Although you might feel embarrassed about that, you can rest assured that it’s illegal for your employer to fire you or otherwise punish you for filing.

Anyone Who Checks Your Credit

Potential employers who run a credit check can also find out about any bankruptcies potential employees filed. Before a potential employer can run the credit check, you have to give consent. If you are concerned about the filing or about how other details on your credit report will hurt you, you can refuse to give an employer permission. Private employers do have the option of using the information on your credit report when making a hiring decision or of using the fact that you refused to give permission for a credit check as grounds for not hiring you. A government agency, whether it’s a federal, state, or local agency, can’t use the information on your credit report when making a hiring decision.

Cosigners

If a friend or relative cosigned a loan with you, that person will find out about your bankruptcy. Whether that person is responsible for the debt or not depends on what you file. Cosigners have less protection under Chapter 7 bankruptcies than they do under Chapter 13, according to Nolo. Under Chapter 7, the creditor can try to collect the debt from your cosigner, unless you reaffirm the debt, or keep it from being discharged. If you reaffirm the debt, you remain responsible for it. Under Chapter 13, your cosigner can be off the hook if you repay the debt as part of your payment plan.

Anyone You Choose to Tell

Bankruptcies don’t have to be top secret. They are part of the public record. While you might not need to tell your first cousin once removed or your great-aunt about your filing, you might decide to tell the people closest to you, so that they understand what you are going through and can provide support.

One other group of people will find out about your bankruptcy, and that’s the organization you turn to for your required counseling and debtor’s education before and after you file. If you are considering filing for bankruptcy, you can get a free consultation with a local bankruptcy attorney in your area

If you own a car and file for Chapter 7 bankruptcy, what you do with your car will depend on whether you owe money on it and, if you do, whether you can afford to keep it. If you do not owe money on the car, you may have to pay to keep it unless you can exempt the entire value. If you do owe money on it, you must tell the court whether you intend to reaffirm the debt, redeem the car, or surrender the car.

If you are behind in your car payments, you will lose your car in Chapter 7 bankruptcy (even if your equity is exempt) unless you take care of the arrearage or get the lender to agree to some other payment plan.

Bankruptcy Basics

Most people think of bankruptcy as a process in which you go to court and get your debts erased. It’s not that simple. In fact, there are two types of bankruptcy: the familiar liquidation bankruptcy, where your debts are wiped out (Chapter 7 bankruptcy), and “reorganization” bankruptcy, where you partially or fully repay your debts. The reorganization bankruptcy for individuals is called Chapter 13 bankruptcy. (There are two other kinds of reorganization bankruptcy: Chapter 11, for businesses and for individuals with debts over $1 million, and Chapter 12, for family farmers.)Filing for bankruptcy puts into effect something called the “automatic stay,” which immediately stops your creditors from trying to collect. Creditors cannot garnish your wages, empty your bank account or go after your car or house.

Until your bankruptcy case ends, your financial problems are in the hands of the bankruptcy court. The court exercises its control through a court-appointed person called a “bankruptcy trustee.” The trustee’s primary duty is to see that your creditors are paid as much as possible.

Chapter 7 Bankruptcy – An Overview

Chapter 7 bankruptcy is sometimes called “straight” bankruptcy. It cancels all or most of your debts. In exchange, you might have to surrender some property. It takes up to six months and costs approximately $175 in filing fees.

To file for Chapter 7 bankruptcy you fill out several forms describing your property; income; monthly living expenses; debts; exempt property – the property you keep out of bankruptcy; any property you sold or gave away; and money you spent during the previous two years. The trustee reviews your papers at a short hearing, called the “creditors’ meeting,” which you must attend. Creditors may attend, too, but rarely do. After this meeting, the trustee collects your nonexempt property to sell to pay your creditors. If the property isn’t worth very much or would be cumbersome to sell, the trustee can abandon the property – meaning you get to keep it.

Chapter 7 Bankruptcy – When It Might not Help
Filing for Chapter 7 bankruptcy is only one way to solve debt problems. In several situations, Chapter 7 bankruptcy may not be the right choice.

You previously received a bankruptcy discharge

You cannot file for Chapter 7 bankruptcy if you obtained a discharge of your debts under Chapter 7 or Chapter 13 in a case that began within the past six years.

A previous bankruptcy case was dismissed

You cannot file for Chapter 7 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days because you violated a court order or requested the dismissal after a creditor asked for relief from the automatic stay.

A friend or relative cosigned a loan

Anyone who cosigned a loan or otherwise took on a joint obligation with you can be held wholly responsible for the debt if you file for Chapter 7 bankruptcy.

Repayment through Chapter 13

A bankruptcy judge who decides you have enough assets or income to repay your debts can dismiss your Chapter 7 bankruptcy case or convert it to a Chapter 13 bankruptcy.

READ Our Attorney Wants to Charge Us to Convert Our Case From a Chapter 13 Bankruptcy to a Chapter 7 Bankruptcy. – Cody

You defrauded your creditors

Bankruptcy is geared toward the honest debtor who got in too deep and needs the help of the bankruptcy court to get a fresh start. If you have engaged in any questionable activities, such as unloading assets to your friends or relatives to hide them from creditors, incurring debts for non-necessities when you were clearly broken, or lying about your income or debts on a credit application, your case may be thrown out.

You recently incurred debts for luxuries

If you’ve recently run up large debts for a vacation, hobby, or entertainment, filing for bankruptcy probably won’t help you. Most luxury debts incurred just before filing are not dischargeable if the creditor objects.

You expect debts for necessities

If you expect to incur more debts for necessities, such as additional medical costs you anticipate because of an existing illness, consider delaying filing for bankruptcy. Debts you incur after you file will not be discharged.

Chapter 7 Bankruptcy – Will It Discharge Enough of Your Debts?
Certain debts cannot be discharged in Chapter 7 bankruptcy. These are called non-dischargeable debts, and it doesn’t make sense to file for Chapter 7 if your primary goal is to get rid of them. In general, they are:

Back child support and alimony
Student loans that first became due fewer than seven years ago
Court-ordered restitution
Income taxes less than three years past due
Court judgments for injuries or death to someone arising from your intoxicated driving
Furthermore, the bankruptcy judge can rule any of the following debts nondischargeable if the creditor objects in the bankruptcy court:

Debts incurred on the basis of fraud, such as lying on a credit application
Debts from willful or malicious injury to another or another’s property
Debts from larceny (theft), breach of trust, or embezzlement
Debts you are obligated to pay under a divorce settlement
Chapter 7 Bankruptcy – How Much Property Will You Have to Give Up?
Whether or not you file for Chapter 7 bankruptcy may depend on what property will be taken to pay your creditors – your nonexempt property. In most states, you can keep the following items (this list varies greatly from state to state):

A motor vehicle, to a certain value
Reasonably needed clothing
Reasonably needed household furnishings, goods, and appliances
Jewelry, to a certain value, and personal effects
Life insurance (cash or loan value, or proceeds), to a certain value
Pensions and retirement plans
Part of the equity in your home
Tools of your trade or profession, to a certain value
The portion of unpaid but earned wages
Public benefits (welfare, Social Security, unemployment compensation) accumulated in a bank account
If you’ve pledged property as collateral for a loan, the loan is called secured. The most common examples are house and motor vehicle loans. In most cases, you’ll either have to surrender the collateral to the creditor or make arrangements to pay for it during or after bankruptcy.

Maybe Chapter 13 Bankruptcy Is a Better Choice
Chapter 13 bankruptcy is different from Chapter 7. Instead of asking the court to wipe out your debts, you propose a three to five-year repayment plan under which you pay all, or a portion of, your debts. To file for Chapter 13 bankruptcy you fill out the same forms as you would for a Chapter 7 case plus your proposed repayment plan. If the court accepts your plan, you make payments to the bankruptcy trustee who distributes a share to your creditors.

There are many reasons why people choose Chapter 13 bankruptcy – and in particular, choose Chapter 13 over Chapter 7. Generally, you are probably a good candidate for Chapter 13 bankruptcy if you are in any of the following situations:

You are behind on your mortgage or car loan and want to make up the missed payments and reinstate the original agreement (You cannot do this in Chapter 7 bankruptcy. You can in Chapter 13 bankruptcy.)
You owe federal income taxes (Unless you meet several conditions, you cannot discharge federal income taxes in Chapter 7 bankruptcy. You can use Chapter 13 bankruptcy to pay the IRS over time.)
You have a property you’d lose if you filed for Chapter 7 bankruptcy
You received a Chapter 7 discharge within the previous six years
You have a co-debtor on a personal debt
You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so
Chapter 13 Bankruptcy – Are You Eligible?
Chapter 13 bankruptcy has a number of eligibility requirements.

Your debts must not be too high

You will not qualify for Chapter 13 bankruptcy if your secured debts exceed $750,000. A debt is secured if you stand to lose the specific property if you don’t make your payments to the creditor. Home loans and car loans are common examples of secured debts. But a debt might also be secured if a creditor – such as the IRS – has filed a lien on your property.

In addition, your unsecured debts cannot exceed $250,000. Unsecured debt is any debt for which you haven’t pledged collateral. Most debts are unsecured, including credit cards, medical bills, student loans, and department store charges.

You must have a stable and regular income

This doesn’t mean you must earn the same amount every month. But the income must be steady – likely to continue – and periodic – weekly, monthly, quarterly, semi-annually, or seasonally.

You must have disposable income

Your income must be high enough so that after you pay for your basic needs, you will have money left over to make periodic payments to the trustee. To determine if your disposable income is high enough, you must create a monthly budget. If the trustee or a creditor thinks your budget includes expenses other than necessities, it may be challenged.

When you file bankruptcy you have to list all your property and all your debts. Most people want to leave out a debt because it is their intent to keep paying on it.

The good news is that you can achieve the same goal, even though you have to list the debt.

If you want to keep paying off debt after bankruptcy, you can. After bankruptcy, you can go back and pay anybody you want.

In fact, after you file for bankruptcy, there are some debts you have to keep paying on. For instance, if you have a car, truck, or house loan, even though you list the debt in your bankruptcy, if you want to keep the car, truck or house, you have to keep paying on the debt.

More importantly, as long as you stay current on the loan, and keep the property properly insured, you are protected under the law, and you get to keep the property.

This may be the most frequently asked question by my clients. And the answer is, no, you cannot keep any of your credit cards when you file for bankruptcy, not even for emergencies.

Once your credit card company learns that you have filed for bankruptcy, it will almost certainly cancel your card.

Why Your Credit Card Will Be Cancelled When You File for Bankruptcy
When preparing to file for bankruptcy, it is common for my clients to want to exclude one or more debts from their bankruptcy petition schedules. Most often this is a credit card used for work expenses.

Unfortunately, no matter how important the card is to you, excluding any of your debt isn’t an option when you file for Chapter 7 bankruptcy.

Bankruptcy law requires you to list all of your debt on your bankruptcy petition, without any exceptions. In other words, if you owe a creditor money, the creditor, and that debt, must appear on your Chapter 7 bankruptcy petition.

Even if you don’t owe a balance on your credit card, you are still required to list that card in your bankruptcy schedule.

A revolving credit card account is a contract, and your contracts are automatically canceled when you file for bankruptcy.

Thus, once your credit card company finds out about your bankruptcy and realizes that it no longer has a contract, the credit card company will cancel your card. Why? Because the card company won’t be able to enforce any collections against you.

When your debt is discharged, it means that you no longer have any obligation to repay that debt.

It also means that your creditor may not take any effort to compel you to repay the discharged debt.

However, if someone else (such as a relative or friend) has guaranteed or co-signed your debt, their obligation to the creditor is not discharged.

Also, if you have a loan that’s collateralized by property (a house, car, some jewelry, some electronics), your creditor may still be able to repossess that property if you do not repay the loan or agree to reaffirm it in your bankruptcy.

Bankruptcy is a legal proceeding carried out to allow individuals or businesses to obtain freedom from their debts, while simultaneously providing creditors an opportunity for repayment if the debtor has the ability to pay a part of their debt. Bankruptcy cases are filed in, and disposed of, in the federal courts, and the bankruptcy rules are outlined in the U.S. Bankruptcy Code.

There are various types of bankruptcy, commonly referred to by their chapter within the U.S. Bankruptcy Code. Most people have heard of Chapter 7 and Chapter 13 bankruptcies, but there are other chapters for farmers and businesses.

Bankruptcy can allow you a fresh start.

Reasons You Should Consider Filing for Bankruptcy
Most bankruptcy attorneys agree that job loss, credit card debt, and medical debt are the most common reasons for considering bankruptcy.

Health problems can make it difficult or even impossible to do your job. The result is you either quit or are let go by the company. This is a death spiral because you lose your source of income at precisely the same time your expenses are increasing because of your medical bills

There are some other, less imposing situations that could cause you to consider bankruptcy. You might be headed down that road if:

You are getting a divorce
Creditors are suing you for payment of debts
Your mortgage is underwater and in danger of foreclosure
You’re taking out personal or payday loans
You’re beginning to use credit cards for everyday expenses
You use one credit card to pay off another
You are considering withdrawing money from a 401(k) or other retirement accounts to pay bills

Types of Bankruptcy
Chapter 7 Bankruptcy
There are two types of bankruptcy for individuals—one discharges debts, and the other is a payment plan with a partial discharge of debts.

Chapter 7 bankruptcy is for the discharge of debts. Chapter 7 is what most people think of when they ask what different types of bankruptcy there are.

When you file a Chapter 7, you either continue to pay for or give up, your property for secured debts (homes, cars, etc). Virtually everyone who files Chapter 7 bankruptcy keeps their car and home.

You keep all of your other exempt property (clothes, personal possessions, etc) and are forever released from any obligation to repay the remaining dischargeable debt.

Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, you are not seeking to get rid of all of your debt entirely, but only to do one or a combination of the following:

restructure your payments so they are more manageable, considering your income; get rid of part of your debt so that you can manage payments.

This can be done by spreading your payments over a 36 to 60-month period, or by paying only a part of the loan.

This type of bankruptcy payment plan can last up to five years.

The two main things the trustee and the judge will consider in deciding whether to accept your plan are:

whether the creditors are being treated fairly whether each creditor will receive at least as much as if you had gone with the traditional Chapter 7 bankruptcy.

Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of debts from the discharge granted to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy. Congress has determined that these types of debts are not dischargeable for public policy reasons (based either on the nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as the debtor’s drunken driving).

There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13.

Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies. The most common types of nondischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged retirement plans, and debts for a certain condominium or cooperative housing fees.

The types of debts described in sections 523(a)(2), (4), and (6) (obligations affected by fraud or maliciousness) are not automatically excepted from discharge. Creditors must ask the court to determine that these debts are excepted from discharge. In the absence of an affirmative request by the creditor and the granting of the request by the court, the types of debts set out in sections 523(a)(2), (4), and (6) will be discharged.

A slightly broader discharge of debts is available to a debtor in a chapter 13 case than in a chapter 7 case. Debts dischargeable in chapter 13, but not in chapter 7, include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. Although a chapter 13 debtor generally receives a discharge only after completing all payments required by the court-approved (i.e., “confirmed”) repayment plan, there are some limited circumstances under which the debtor may request the court to grant a “hardship discharge” even though the debtor has failed to complete plan payments. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor’s control. The scope of chapter 13 “hardship discharge” is similar to that in a chapter 7 case with regard to the types of debts that are excepted from the discharge. A hardship discharge also is available in chapter 12 if the failure to complete plan payments is due to “circumstances for which the debtor should not justly be held accountable.”

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