What are the purposes of bankruptcy?
What are the different types of bankruptcy?
What is the difference between a Chapter 7 and Chapter 13 bankruptcy?
Are their any eligibility requirements for filing bankruptcy?
How does bankruptcy help me in the short run?
What is meant by a "discharge"?
Do all debts get discharged after bankruptcy?
How much does it cost to file for bankruptcy?
Will I lose my property if I file for bankruptcy?
I'm behind on my house or car payment. Will bankruptcy help me?
I have past due taxes. Can bankruptcy help me?
Will bankruptcy affect my credit rating?
What are the purposes of bankruptcy?
The primary purpose of bankruptcy is to enable individuals to obtain a fresh start through the discharge of their debts. Bankruptcy also allows businesses to restructure their operations to allow the business to continue operating. Another purpose of bankruptcy is to enable consumers to pay only what they are able to pay to their creditors over a three to five year period.
What are the different types of bankruptcy?
Chapter 7 - This is a liquidation bankruptcy in which a debtors assets (except for exempt assets) are sold to pay creditors with any remaining debt subject to discharge. This chapter is available to consumers or businesses.
Chapter 13 - This type of bankruptcy allows the consumer to propose a plan to pay as much as he/she can to creditors over a three to five year period. This type of bankruptcy works well for consumers who have a regular income and want to retain non-exempt assets and for other reasons which your attorney will discuss with you.
Chapter 11 - This type of bankruptcy is a complex rehabilitation bankruptcy available to businesses and individuals with high debts and substantial assets.
Chapter 12 - This type of bankruptcy resembles Chapter 13 but is specifically designed for farmers and fishermen.
What is the difference between a Chapter 7 and Chapter 13 bankruptcy?
Chapter 7
A chapter 7 bankruptcy is a straight liquidation. The Chapter 7 trustee sells all of the debtor's assets and uses the proceeds to repay creditors and any unpaid debt is subject to discharge. Those who file for Chapter 7 usually get to keep most or all of their assets because certain assets are exempt from sale by the trustee. Bankruptcy reform legislation established a means test for determining a person's eligibility to file under Chapter 7. This means test determines whether the person has the ability to repay at least a portion of their debt, and if so, they are not eligible for Chapter 7 but must file under Chapter 13.
Chapter 13
Chapter 13 is different. The debtor proposes a debt repayment plan which covers three to five years. The debtor makes regular monthly payments to the bankruptcy trustee who distributes the funds to the various creditors pursuant to a priority hierarchy established by the bankruptcy code. Chapter 13 is appropriate for those who have a regular income and are able to repay a portion of their debts. Chapter 13 can also help consumers who own a home or automobile, are behind on the payments, but wish to retain those assets.
It is important to consult with a qualified bankruptcy attorney to determine which chapter works best for each individual to achieve his/her goals.
Are their any eligibility requirements for filing for bankruptcy?
Generally, anyone can file for bankruptcy and may chose the chapter under which they want to file.
However, there are some limitations on who can file under Chapter 7. To file under Chapter 7, an individual with primarily consumer (non-business) debts must pass what is called the "means test". This test determines whether the person has the ability to repay some of his debts. If the consumer does have that ability as determined by the means test, the person cannot file under Chapter 7 but must file under Chapter 13.
There are two basic requirements for filing bankruptcy under Chapter 13. First, the consumer must have an income source. The income need not come from a job as other types of income may qualify. Second, the consumer's debts must be less than $922,975 secured (such as a mortgage) and $307,675 unsecured (such as credit card debt).
You should consult with a qualified bankruptcy attorney who can counsel you as to which chapter is available to you, and which chapter would meet your goals and achieve the most relief.
How does bankruptcy help me in the short run?
As soon as the bankruptcy petition is filed, an automatic stay goes into place. This automatic stay prevents creditors from engaging in any further collection activities, including telephone calls, wage garnishment, attempts to foreclose, attempts to repossess assets, and attempts to evict (provided the landlord has not already obtained a judgment for possession).
What is meant by a discharge?
A discharge is a bankruptcy term which means that the debtor no longer owes or is required to pay the discharged debt and the creditor may not attempt to collect the debt.
Do all debts get discharged after bankruptcy?
No, some types of debts are non-dischargeable. The following debts are generally non-dischargeable: certain taxes; alimony obligations; fines and orders of restitution which occurred before the bankruptcy petition was filed; debts for injury or death due to the use of alcohol or drugs; student loans; and certain condo fees.
How much does it cost to file for bankruptcy?
There are two primary costs in filing for bankruptcy; filing fees imposed by the bankruptcy court, and attorney fees. The filing fees for U.S. Bankruptcy Court for the Northern District of California are $299 for Chapter 7 and $274 for Chapter 13. Attorney's fees vary from attorney to attorney, but most charge a flat fee for the routine aspects of the filing, and separate fees should extra work beyond the routine be required.
Consumers who file for bankruptcy are also required to receive debt counseling prior to filing, and financial management/budgeting training prior to receiving a discharge. These services combined can be had for less than $100.
Will I lose my property if I file for bankruptcy?
Generally, no. Chapter 7 exempts certain property from sale by the Chapter 7 trustee. Usually, a Chapter 7 filer is able to retain all of his/her assets due to these exemptions. The vast majority of all bankruptcy filers get to keep their property. A qualified bankruptcy attorney can assist you with helping you retain your assets even though you file for bankruptcy.
I'm behind on my car or house payment. Can bankruptcy help me?
Yes, and in this case, Chapter 13 would be appropriate. A Chapter 13 filer can propose a repayment plan over three to five hears whereby he/she repays the missed payments over time and keeps the property in question.
I have past due taxes. Can bankruptcy help me?
Yes. Filing a Chapter 13 bankruptcy can stop attempts by the IRS or State to levy taxes or garnishee wages. Usually, past due taxes can be restructured or eliminated by following through with a Chapter 13 repayment plan.
Will bankruptcy affect my credit rating?
Chances are if you are contemplating bankruptcy, your credit rating is already poor. Your credit rating could actually improve post bankruptcy. Typically, bankruptcy filers begin receiving credit offers within 90 days of bankruptcy. Creditors understand that a recent bankruptcy filer cannot file again for a significant period of time, and since the person recently had his debts erased he/she is now able to repay new credit. Therefore, you can generally begin rebuilding a strong credit rating soon after bankruptcy.
