F.A.Q.’s

A Chapter 7 bankruptcy is a liquidation of a debtor’s non-exempt property.  The Chapter 7 Trustee distributes the proceeds of the liquidation to the creditors. It is rare for a Debtor to lose any assets by way of a liquidation sale, as the law allows a Debtor to exempt certain assets from such a sale.  The Debtor will ultimately receive a discharge of all dischargeable debts.

The Bankruptcy laws provide a Debtor with a fresh start by preventing creditors from attempting to collect on an old debt.  Additionally, the Bankruptcy laws provide for equal treatment of creditors by allowing a liquidation of non-exempt assets in an orderly fashion.

A Chapter 13 Bankruptcy is a reorganization of a Debtor’s financial obligations.  A Chapter 13 is usually the remedy of choice when an individual is delinquent in his or her house payments, has no equity in a junior mortgage(s), and/or has non-exempt assets.  For example, if a homeowner’s second mortgage is completely under water (unsecured), it may be possible to make that mortgage disappear in a Chapter 13 Bankruptcy.   A Chapter 13 Debtor must have regular income that is sufficient to pay their reasonable living expenses, as well as make payments to their Chapter 13 Plan for three (3) to five (5) years.

Not yet, but there are now additional requirements for filing Bankruptcy.  Unfortunately, Bankruptcy Debtors are not well known for their generous campaign contributions, so the Bankruptcy Reform Act of 2005 was not drafted with the Bankruptcy Debtor’s best interests at heart.   

A major component of the Bankruptcy Reform Act of 2005 is the “Means Test”.  Debtors must now pass an earnings test to be eligible to file a Chapter 7 Bankruptcy.  If the Debtor’s income is too high, a presumption of abuse arises and the Debtor will have to file a Chapter 13 Bankruptcy.  Nevertheless, a majority of filers will qualify for a Chapter 7, albeit there will be more hoops to jump through because of the demands of our illustrious congress.  Just think of your Bankruptcy Discharge as your government bailout, as it is highly likely that a large number of your Bankruptcy Creditors actually received government bailout funds, so you have already paid them!

No, you can’t kill them (although Texas may have some form of loophole).  However, all collection activities must cease upon the filing of a Bankruptcy (“Automatic Stay”).  A creditor (usually secured) may be able to lift the Automatic Stay and pursue collection activities if a Debtor is delinquent in her or his payments.  Additionally, many states have laws preventing a creditor from contacting a Debtor if such Debtor is represented by an attorney.

Your spouse may not need to file with you, if that spouse is not jointly responsible for the debt to be discharged.  If both parties did not sign the contract, then the non-signing spouse is usually not legally responsible for the debt.  Please be advised that in community property states, the marital community may still be obligated for a debt even if one spouse did not sign the agreement.  Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.  Moreover, a non-filing spouse’s community property may be included in the Bankruptcy Estate, so proper pre-bankruptcy planning must provide for sufficient exemptions to accommodate the non-filing spouse’s interest in community property.

Although Bankruptcy filings are public records, it is highly unlikely that your filing will be discovered by your nosy neighbor.  Unusual filings may receive more public scrutiny (hello GM), but non-business filings are rarely published.  Business filings are usually published in legal or business periodicals, so the average person would not know of a particular Bankruptcy filing. Obviously, a credit report will reveal the Bankruptcy filing, and it is usually reported for ten (10) years. 

The law does not prevent you from keeping your credit cards.  However, your creditor can.  You can attempt to use the Bankruptcy process to negotiate with your credit card company to keep your card (called a reaffirmation agreement), but they will probably require you to pay the balance.  In fact, even if you don’t owe money on a credit card, the credit card company can cancel your credit card even if you do not owe that creditor any money.  Don’t worry, you should be able to obtain a secured credit card a short time after obtaining your discharge.