BANKRUPTCY

• What’s bankruptcy?

• What’s the difference between secured and unsecured debt?

• Which kind of bankruptcy should I file?

• Can I change from one chapter of bankruptcy to another?

• Who can file bankruptcy?

• How often can you file for bankruptcy?

• What do I need to begin the bankruptcy process?

• Do you have to have a certain amount of debt to file?

• What’s a joint petition?

• What happens if one spouse files for bankruptcy and not the other?

• Does my divorce decree protect me from creditors if my ex files for bankruptcy?

• Can a co-signor of a loan be responsible for a debt if the other person has declared bankruptcy?

• Can all types of debt be discharged?

• What can I keep, if anything, if I file bankruptcy?

• Do I have to file bankruptcy on all the accounts I owe, or can I keep some?

• Will I lose my retirement accounts or payments from social security?

• Will I lose my home if I file for bankruptcy?

• How long does a bankruptcy stay on my record?

• Can I do anything to remove a bankruptcy from my credit report?

• When can I apply for credit again?

• Can a “credit repair” company really save me from bankruptcy?

• Can a creditor continue to contact me after I’ve filed for bankruptcy?

• Who lets my creditors know I’ve filed for bankruptcy?

• What does a trustee do?

• Can creditors object to a bankruptcy filing or plan?

• What happens at a creditors meeting?

• What if I’ve forgotten to include a debt on my schedule? Can I add it later?

• When do I have to stop using my credit cards if I’m planning on filing for bankruptcy?

• What’s a reaffirmation agreement?

• Can a bankruptcy be reopened?

• How’s an inheritance treated in a bankruptcy case?

 

1. What’s bankruptcy?
Bankruptcy allows individuals or businesses (debtors) who owe others (creditors) more money than they’re able to pay to either work out a plan to repay some (or all) of the money owed over time or completely eliminate (discharge) most of the bills in exchange for the debtor's non-exempt assets.

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2. What’s the difference between secured and unsecured debt?
Secured debt is a claim that’s secured by some type of property, either by an agreement (mortgage), lien, or involuntarily with a court judgment or taxes. Creditors can generally claim the property that secures the debt in the event of bankruptcy. Unsecured debt is not tied to any type of property, and the creditor doesn’t have a claim to their property. A mortgage is a secured debt on your property. If you have a car loan, it is usually secured against the vehicle. Credit cards are usually not secured (although some credit union cards are secured if you have another loan with them).

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3. Which kind of bankruptcy should I file?
Consumers typically file Chapter 13 bankruptcy (where repayment is made to creditors over time), or Chapter 7 (where the debts are dismissed without a repayment schedule). Each chapter of bankruptcy spells out:

What bills can be eliminated;
How long payments can be stretched out; and
What possessions you can keep;

 

The type depends on your circumstances and if you have assets available to repay all or part of your debts. Bankruptcy laws can be tricky and involved, so determining if, when and which type of bankruptcy you need should be made with careful thought or the input of a bankruptcy lawyer.

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4. Can I change from one chapter of bankruptcy to another?
Generally, you can convert a case one time to any other chapter you’re eligible for. The request to convert can be a simple one-sentence document. Watch out for issues, such as moving from a Chapter 13 to a Chapter 7, you’ll need to review whether you have acquired items that are now considered property of the estate under Chapter 7 that weren’t part of the previous filing. Ask the trustee or a bankruptcy lawyer for additional issues.

 

5. Who can file bankruptcy?
With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition.

 

6. How often can you file for bankruptcy?
Filing bankruptcy can adversely affect your ability to obtain future credit, rent housing and even negatively impact a job application. Any decision to file must be carefully considered. Chapter 7: Can be filed every 8 years from a previous chapter 7 filing or 6 years from a prior chapter 13 filing. Chapter 13: Can be filed 4 years from a prior Chapter 7 filing or 2 years from a prior Chapter 13 filing.

 

7. What do I need to begin the bankruptcy process?
Compile a list of past and present debts as well as a schedule, or list, of assets and liabilities.

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8. Do you have to have a certain amount of debt to file?
No. However, some situations may not warrant filing for bankruptcy. If your financial situation is temporary, you may consider making arrangements with individual creditors for a change in payment amounts or a reduction in the total amount due. If you have little property or money, filing bankruptcy may not be necessary, as the creditor may not be able to collect the debt.

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9. What’s a joint petition?
A joint petition is when an individual and a spouse file a single petition. Unmarried partners must each file a separate case.

 

10. What happens if one spouse files for bankruptcy and not the other?
If one spouse files and the other does not, the one who doesn’t file could be responsible for the debts.

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11. Does my divorce decree protect me from creditors if my ex files for bankruptcy?
No. If you’re a co-signor with your ex-spouse on a debt acquired while married, the creditor can require the entire payment of that debt from you even though the divorce decree assigns the full debt to your ex-spouse. Your divorce decree may address any recourse you may have against your ex-spouse should he or she default on the loan obligations.

 

12. Can a co-signor of a loan be responsible for a debt if the other person has declared bankruptcy?
Yes. The lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. This makes it extremely important when considering co-signing a loan: Be ready, and able, to pay the loan in the event that the principal signor defaults.

 

13. Can all types of debt be discharged?
No. The debts that can’t be discharged vary slightly between the different chapters of bankruptcy. Generally, the following cannot be discharged:

• Debts for taxes owed to local, state or federal agencies

• Debts for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained fraudulently

• Debts that weren’t scheduled with the Court or that are waived

• Debts owed to a spouse, former spouse, or child, for alimony, maintenance, or support of a spouse or child, with a separation agreement, divorce decree or other order of a court of record

• Debts owed for injury to another person or property owned by another (as in a court judgment)

• Debts for government-sponsored educational loans, unless it can be shown that repayment will cause an undue hardship

• Debts for death or personal injury caused by the debtor’s drunk driving or from driving while under the influence of drugs or other substances (as in a court judgment)

• Debts incurred after a bankruptcy was filed

 

14. What can I keep, if anything, if I file bankruptcy?
Exemptions allow an individual to “exempt,” or keep, certain kinds of property. State law defines what assets are considered “exempt,” but typically include:

• Vehicles up to a certain amount ($1,000 per person on title)

• Equity in a home up to a certain amount (*unlimited in Florida if you have lived in the home for more than 3 years, 4 months)

• A wild-card exemption to cover other property of $4,000, if you are not keeping a homestead property

• Retirement accounts, life insurance, annuities

 

15. Do I have to file bankruptcy on all the accounts I owe, or can I keep some?
You must include all the debts you owe in your petition and schedules. You may opt to keep some debts by “reaffirming” the specific debt (such as a car loan).

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16. Will I lose my retirement accounts or payments from social security?
Generally, no. Retirement accounts that are ERISA-qualified aren’t considered property of an estate and aren’t taken into consideration as assets. Social Security benefits are protected from assignment or garnishment for debts in bankruptcy. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the “only” deposits into the account are direct deposits of Social Security benefits are identifiable and generally protected.  There are exceptions for money owed to the IRS.

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17. Will I lose my home if I file for bankruptcy?
Depends. The factors that impact your ability to keep your Florida home are:

• How much equity you have, and how long you have owned the home and lived in the home

• The status of your loan (current or in foreclosure)

• The type of bankruptcy you’re filing (Chapter 13 provides more protection than Chapter 7 as long as payments are current)

• Generally, if you want to keep your homestead in Florida and can afford to pay the mortgage, you will usually be able to keep the property barring some unusual circumstances.

 

18. How long does a bankruptcy stay on my record?
Bankruptcies remain on credit reports anywhere from 7 up to 10 years.

 

19. Can I do anything to remove a bankruptcy from my credit report?
No. Although at your option, you can file an explanation with the credit reporting agencies briefly describing the events resulting in your bankruptcy. If an account is reported inaccurately, you can request the record be updated to reflect the actual situation.

 

20. When can I apply for credit again?
The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor. There’s no law that prevents anyone from extending credit to you immediately after the filing of a bankruptcy, but creditors aren’t required to extend you credit.

 

21. Can a “credit repair” company really save me from bankruptcy?
Most consumers can be just as effective as a credit repair company in dealing with credit reporting agencies and improving their credit ratings, it simply takes time and patience. While there are non-profit companies in each state that offer credit guidance for a small fee, credit repair companies offer very little, relative to the fees they charge.

 

22. Can a creditor continue to contact me after I’ve filed for bankruptcy?
During the time the debtor is working out a plan or the trustee is gathering and preparing the assets to sell, the bankruptcy code dictates that creditors must stop all collection efforts against the debtor. As soon as the bankruptcy petition is filed, you’re immediately protected from your creditors. This is called an automatic stay. After that time, if a creditor attempts to collect a debt, immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case name, number and filing date, or a copy of the petition that shows it was filed. If the creditor still continues collection activity, you may be entitled to take legal action against them.

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23. Who lets my creditors know I’ve filed for bankruptcy?
The bankruptcy court notifies, by mail, all creditors advising them of:

• The filing of the bankruptcy

• The case number

• The automatic stay

• The name of the trustee assigned to the case (if filed under chapters 7 or 13)

• The date set for the meeting of creditors

• The deadline, if any, set for filing objections to the dismissal of debts

• Whether and where to file claims

• The exact information in the notice may be slightly different depending on the chapter under which the case is filed.

 

24. What does a trustee do?
The trustee’s job is to:

• Administer the bankruptcy

• Make sure creditors get as much money as possible

• Run the first meeting of creditors (also called the “section 341 meeting”).

• Collect and sell non-exempt property (in a chapter 7 case) or collect and pay out money on a repayment plan (in a chapter 13 case)

• Obtain information from you and documents related to your bankruptcy

• Panel trustees are appointed by the bankruptcy court and usually are private-practice lawyers or CPAs. Their fees are covered by the bankruptcy filing fee or are a set percentage of the money distributed in the bankruptcy.

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25. Can creditors object to a bankruptcy filing or plan?
Yes. Bankruptcy filings allow creditors to object to specific debts in the plan or the repayment or cancellation in its entirety.

Chapter 7: Creditors generally have 60 days after the first creditors meeting to object to the discharge of a specific debt. If no objections are filed, the court issues the discharge order; the trustee collects and sells the assets then distributes the proceeds to the creditors under a predetermined schedule. If there are objections, the bankruptcy proceedings, less the objected debt(s), continue. A trial may be necessary to resolve the objectionable issues.

Chapter 13: Creditors can object to the plan for repayment and the court may take this into consideration. If no objections are filed by creditors or the trustee, the plan may be confirmed as filed.

 

26. What happens at a creditors meeting?
The debtor must attend the creditors meeting conducted by the trustee appointed to their case. The debtor must answer questions concerning:

• How the situation evolved

• Any actions taken with the property

• Debts listed in the petition or any other financial information requested by the trustee

• Failure to respond truthfully can result in the petition being dismissed or, in extreme cases, a charge of perjury. Creditors may attend and question the debtor about the assets or any other matter relevant to the bankruptcy. A creditor doesn’t waive any rights by not attending the creditors meeting.

 

27. What if I’ve forgotten to include a debt on my schedule? Can I add it later?
After filing the petition, if you discover that an entry is inaccurate or missing, you may typically file an amendment to correct it. You’re submitting the petition under the penalty of perjury, so take care with the initial filing. Also, any debt that isn’t on the list can’t be discharged and you’ll could still be responsible for it (there are some exceptions).

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28. When do I have to stop using my credit cards if I’m planning on filing for bankruptcy?
As soon as you anticipate filing bankruptcy, stop using your credit cards. Bankruptcy law allows the review of questionable purchases for potential fraud. If purchases or cash advances are made close to your filing date, the debt may possibly be excluded from the bankruptcy and, in some cases, your petition can be dismissed.

 

29. What’s a reaffirmation agreement?
When you “reaffirm” to pay off a debt, you’re legally obligated to pay all or a portion of an otherwise cancellable debt. This is voluntary and not required by bankruptcy codes. You may voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid legal reasons for wanting to reaffirm a specific debt, such as a vehicle loan.

 

30. Can a bankruptcy be reopened?
Yes. Typically, a bankruptcy case is reopened by the trustee when questions arise concerning what was included or possibly omitted, or any other irregularities that surface.

 

31. How’s an inheritance treated in a bankruptcy case?
How an inheritance is treated in bankruptcy depends on when you become entitled to receive it and what type of bankruptcy relief you’re seeking. If you’ve filed for Chapter 7 bankruptcy, and you become entitled to an inheritance within 180 days of your filing date, the inheritance will be a part of your bankruptcy estate and can be used to pay your debts. The important date is when your right to the inheritance is fixed, typically on the date of a person’s death. You might not receive property or money from someone’s estate for many months.

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If you’ve filed a Chapter 13 case, your inheritance can be used in determining how much you have available to pay creditors under your repayment plan, and the 180-day limit doesn’t apply. In either type of bankruptcy, you must inform the bankruptcy trustee about the inheritance. If you’re thinking about filing for bankruptcy, ask a bankruptcy lawyer how an expected inheritance might factor into your plans.