Frequently Asked Bankruptcy Questions
1. Q: Can I keep my car and my house if I file for bankruptcy?
A: So long as you are current on your car payments or mortgage payments or almost current and we can work something out with your lender to catch up on the arrears, bankruptcy filers are able to keep their car and house in almost all circumstances. The only situation under which you would not be able to keep your car or house is if you have equity in excess of what the bankruptcy code allows you to exempt. For example, if your car is worth $20,000.00 and you only owe $5,000.00 on the loan, you would have $15,000.00 in equity that we may not be able to exempt. This is an extremely rare scenario. Also, if you are behind on your home mortgage and/or car payment, a Chapter 13 bankruptcy (see explanation in #3 below) will allow you to cure those arrears over a five year period time.
2. Q: When the bankruptcy laws changed a few years ago, didn't it make it almost impossible to file for bankruptcy?
A: When the bankruptcy law changed in 2005, the primary change was that they added a "median income" threshold. If you are an above median debtor, there is a presumption that you may have to file a Chapter 13 bankruptcy which is a repayment plan over a three or five year period of time. If you are a below median debtor, however, it is still relatively easy to receive a Chapter 7 discharge without paying back any of your creditors. Thus, if you are a below median debtor, the change to the bankruptcy law in 2005 had very little impact on your ability to file a bankruptcy. In conclusion, the change to the bankruptcy law in 2005 did not make it almost impossible to file for bankruptcy; rather, most people are still able to file for bankruptcy notwithstanding the change to the law.
3. Q: What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
A: A Chapter 7 bankruptcy is a complete discharge of your debts without repaying anything back to your creditors with the exception of non-dischargeable debts. (See explanation in #8 below) A Chapter 13 bankruptcy, in contrast, is a repayment plan over a three or five year period of time under which you pay back your creditors some (or all) of what is owed over this three or five year period of time. A Chapter 13 bankruptcy also allows you to stop a foreclosure or a repossession of your car and allows you to repay the arrearages on car loans and/or mortgages over a three or five year period of time.
4. Q: How long does a bankruptcy case take?
A: A Chapter 7 bankruptcy is relatively quick. Once the petition is filed, a meeting of creditors will be scheduled usually between 30 and 45 days thereafter. Then, 60 days after the meeting of creditors, unless there are some complexities or complications in the case, you will receive your discharge, and the case will close. Thus, a Chapter 7 bankruptcy case usually lasts between 90 to 120 days. A Chapter 13 bankruptcy, on the other hand, is a three or five year repayment plan. Thus, a Chapter 13 bankruptcy takes between three and five years.
5. Q: Will I have to ever go to court if I file for bankruptcy?
A: In most cases, debtors do not have to go to the bankruptcy court during their case. However, occasionally, hearings can come up such as a mortgage lender's request for permission to foreclose or motions to dismiss which may require you to attend bankruptcy court. However, in most cases, you will typically not have to appear in court before a bankruptcy judge. The meeting of creditors, which everyone must attend (explanation in #12 below), takes place in a conference room with a bankruptcy trustee, rather than before a Judge in a courtroom.
6. Q: Can my creditors still contact me or take collection activity against me if I file for bankruptcy?
A: No. Once you file for bankruptcy, you are protected by what is called the "automatic stay." The automatic stay arises immediately upon your filing for bankruptcy, and all creditors are prevented, by law, from contacting you by telephone, in person, letter, or taking any activity to collect a debt. If you are behind on your car loan or mortgage, a creditor can request permission from the court to continue their foreclosure or repossession efforts. Without such permission, however, creditors are prohibited from contacting you or taking any collection activity against you while you are in bankruptcy.
7. Q: I have already been sued by a creditor. Does this prevent me from filing for bankruptcy?
A: No. Oftentimes, persons will file bankruptcy for the very reason to stop creditors from continuing law suits. As such, once you file for bankruptcy, all creditors have to stop any law suits that they have started against you.
8. Q: If I file for bankruptcy, do I have to pay some of my debts back?
A: As explained above, if you file for a Chapter 13 bankruptcy, this will involve paying back some debts through a three or five year period of time. Regardless of whether you file a Chapter 7, 11, or 13 bankruptcy, some debts are not dischargeable. The most common non-dischargeable debts are as follows: most taxes, student loans, and debts on your home or car, although not dischargeable, will have to be repaid if you want to keep those pieces of property. Aside from these items above, and other non-dischargeable debts, you will not have to repay any of your debts in a Chapter 7 bankruptcy.
9. Q: I have two mortgages on my home, and I owe a lot more on my home than it's worth, can a bankruptcy reduce what I owe on these two mortgages?
A: A Chapter 13 bankruptcy allows you to do what is called "strip off a wholly unsecured second mortgage." What this means is that, if what you owe on your first mortgage, is equal to or greater than the value of the house, you are allowed to strip off the second mortgage and not pay any of it back once you complete a Chapter 13 bankruptcy plan. For example, if your home is worth $200,000 dollars, and you had first mortgage that you owe $225,000.00 on, and a second mortgage which you owe $50,000.00 on, a Chapter 13 bankruptcy will allow you to strip off that second $50,000.00 mortgage, and it will be deemed fully satisfied and discharged after you complete a Chapter 13 bankruptcy plan. This does require that you do, in fact, complete a Chapter 13 bankruptcy plan which is a three or five year repayment period of time.
10. Q: What do I have to do before I file a bankruptcy?
A: Call Gallant & Ervin and request our bankruptcy client questionnaire. Once you complete same, we will meet with you and discuss your case. Then, you would have to do an online credit counseling course at www.debthelper.com. Finally, provide us with a most recent paystub.
11. Q: I think I may want to file for bankruptcy. What should I do next?
A: Contact Gallant & Ervin for a free bankruptcy consultation. We will explain the bankruptcy process and evaluate whether bankruptcy filing is a solution for you and provide you with our standard bankruptcy questionnaire for you to complete.
12. Q: What happens after I file for bankruptcy?
A: Within a day or two after you file the bankruptcy case, the bankruptcy court with schedule a 341 meeting of creditors. This 341 meeting of creditors will be scheduled between 30 and 45 days after the filing of the case, which you will be required to appear, and an attorney from our office will represent you. At the 341 meeting of creditors, the bankruptcy trustee will ask you about the accuracy of your schedules, and ask you questions under oath to ensure that you have not failed to list any assets and that you have reported your income and liabilities truthfully. In most cases, this will be all that will be required, and 60 days will pass after the 341 meeting, you will receive your discharge, and the case will close.
