Frequently Asked Questions

Q: What is bankruptcy?

A: Bankruptcy is the legal method for a debtor to discharge or relieve debt. Bankruptcy is a way for people or a business that owe more money than they can pay to either work out a plan to repay the money over time or to have their debt wiped out. While no debtor is guaranteed a total discharge, most debtors who file for bankruptcy are given such relief. One of the primary purposes of the bankruptcy act is to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start. Title 11 of the United States Code regulates the filing of a bankruptcy. If the debtor initiates the bankruptcy it is called a voluntary bankruptcy. If the creditor initiates the bankruptcy it is called an involuntary bankruptcy. In an involuntary bankruptcy the debtor has the opportunity to contest the petition. While the debtor is either working out a plan or the trustee is gathering the available assets to sell, the Bankruptcy Code provides that creditors must stop all collection efforts against the debtor. The Bankruptcy Code regulates what chapter you must file under, what bills can be eliminated, how long payments may be extended, what possessions you may keep, and all other details concerning the bankruptcy.

Q: How do the new changes in Bankruptcy Laws affect consumers?

A: The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005, in effect since Oct. 17, 2005, requires debtors to pass more stringent guidelines to determine whether they can have their debts liquidated through Chapter 7 or whether they must enter a repayment plan through Chapter 13. Below is a description of each category. Because the new law makes it more difficult for consumers to file bankruptcy, consumers should consult with bankruptcy attorneys in their area to make sure they file the necessary forms to discharge debt.

• A strict financial means test that will prohibit many debtors from filing a liquidation bankruptcy under Chapter 7;
• A requirement that all debtors must receive a briefing from an approved credit counseling agency at least six months before they can file their bankruptcy case
• A requirement that debtors take an approved class on debt management techniques before they receive their bankruptcy discharge
• A provision making it easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case; and
• A provision permitting a court to impose sanctions on attorneys, or even on debtors, for filing a Chapter 7 case that is dismissed or converted to a Chapter 13 case.

Q: Who can file for bankruptcy?

A: Any person, partnership, corporation or business trust may file bankruptcy. In addition, charitable or social organizations may also file for bankruptcy. United States citizenship is not a requirement for filing bankruptcy

Q: What is the Bankruptcy Code?

A: The Bankruptcy Code refers to Title 11 of the United States Code. (11 U.S.C. º 101-1330) Federal Law governs bankruptcy.

Q: Where do I get a copy of my states local rules?

A: Copies can be obtained at the public service counters in the Clerk`s office of the Bankruptcy Court. In addition, many Bankruptcy Courts now have their rules online.

Q: Will filing bankruptcy affect my credit rating?

A: Unfortunately it will. However, most individuals are able to rebuild their credit within a few years. If you are currently contemplating bankruptcy, then it is likely that your current credit rating has already been affected. A discharge of your current debt may provide the opportunity to rebuild your credit with steady, regular payments on a new account.

Q: How long will a bankruptcy show on my credit reports?

A: The Bankruptcy Court has no jurisdiction over credit reporting agencies. The Fair Credit Reporting Act, 6 U.S.C. Section 605, is the law that controls credit reporting agencies. The law states that credit reporting agencies may not report a bankruptcy case on a person`s credit report after ten years from the date the bankruptcy case is filed. Other bad credit information is removed after seven years. The larger credit reporting agencies belong to an organization called the Associated Credit Bureaus. The policy of the Associated Credit Bureaus is to remove chapter 11 and chapter 13 cases from the credit report after seven years to encourage debtors to file under these chapters.

Q: Can I file for bankruptcy every few years?

A: No. Once a discharge is granted, a debtor who filed under chapter 7 or 11 is prohibited from filing for another 8 years.

Q: Do I need an attorney to file bankruptcy?

A: Federal law does not require you to have an attorney. You are allowed to file pro se, that is, on your own without an attorney. However, without the assistance of an attorney, it is extremely difficult to do so successfully. Hiring a competent attorney is highly recommended.

Q: Will I lose my house, car, and other personal property?

A: Not necessarily, each state has laws that determine which items or property are exempt from being taken away. For example, many states exempt personal items such as furniture and clothing. In addition, other kinds of property are exempt up to a limit. These exemption limits mean that any equity that you have in the property above the limit is not exempt. The Bankruptcy Court can take the property and sell it, pay off any creditors, give to you the exemption amount, and keep the rest for other creditors.

Q: What if I am married?

A: If you are married, you may file a joint petition. A joint petition is the filing of a single petition by an individual and the individual`s spouse. In order to qualify for a joint petition, you must be married on the date that the joint petition is filed. Unmarried persons, corporations and partnerships must each file a separate case. If you are an individual and have a business, you may not file a single petition for yourself and your business; each must be a separate bankruptcy case.

Q:  What is the difference between the different types of bankruptcy?

A: Chapter 7 bankruptcy involves a court appointing a trustee to examine the debtor’s financial condition and selling any extra property to settle the claims of creditors (most debtors lose no property in a Chapter 7). Under Chapter 13 bankruptcy, a borrower proposes a plan for repaying part of the debt in installments from his/her income.  Chapter 11 bankruptcy is generally used by corporations and is not recommended for consumer debtors. 

Q:  For how long will a bankruptcy stay on my record?

A:  A record of bankruptcy remains on a borrower’s credit record for up to ten (10) years.

Q:  How do I know if I am eligible for Chapter 7 bankruptcy?

A:  To qualify for Chapter 7 bankruptcy, your monthly income should be less than or equal to the median income for your state (but not always).  You can find median income information on the Department of Justice website at http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.  If you meet the monthly income requirements, then your disposable income must be calculated.  There are a number of other factors that play a role in determining your eligibility.  For more information, see the U.S. Trustee Program at the Department of Justice website: http://www.usdoj.gov/ust/index.htm or contact the Wantland Law Office for a free consultation.

Q:  Can bankruptcy prevent foreclosure on my home? 

A: If you begin a Chapter 13 case before the foreclosure sale date of your home, the foreclosure will be stopped.  It is possible, under Chapter 13, to bring your loan payments up to date to prevent you from losing your home.  A chapter 7 may stall a foreclosure, but some arrangement will have to be made to bring the home current.