Bankruptcy: Frequently Asked Questions
1 – WHAT IS BANKRUPTCY?
Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you.
2 – WHAT CAN BANKRUPTCY DO FOR ME?
Bankruptcy may allow you to discharge all of your debt, stop a foreclosure of your home (and give you the ability to catch up on missed payments), prevent a repossession of a car or other property, stop wage garnishment and debt collection harassment. Once you file, your creditors will be absolutely prohibited from trying to collect from you and may not contact you without court approval. Also, if you owe more in mortgages than your home is worth, then you may be able to completely avoid a second mortgage or home equity loan through a Chapter 13 filing.
3 – WHAT BANKRUPTCY CANNOT DO:
Bankruptcy cannot cure all financial problems and it is not the appropriate solution for everybody. Bankruptcy will not discharge child support or alimony payments, and generally will not discharge student loans or tax liabilities. At our initial consultation we will discuss your non-bankruptcy alternatives to getting out of debt in order to find the most appropriate solution for you.
4 – WHAT DIFFERENT TYPES OF BANKRUPTCY CASES SHOULD I CONSIDER?
The Bankruptcy Code provides several different Chapters under which a petition may be filed:
- Chapter 7 – Provides individuals and businesses a streamlined process by which all or most of their debts can be discharged. If you are married, then you may file individually or jointly with your spouse. In order to file a Chapter 7, a debtor must qualify under the “Means Test” of the Bankruptcy Code, which compares your household income with the median income for a household of your size in the Commonwealth of Massachusetts. If you do not qualify under the Means Test, you must file under Chapter 13. This test can be quite complicated, so you should hire an experienced bankruptcy attorney to assist you.
- Chapter 9 – This Chapter is reserved for municipalities.
- Chapter 11 – This Chapter is generally used by businesses or wealthy individuals who do not qualify for Chapter 7 or 13. This type of filing is generally referred to as a "reorganization."
- Chapter 12 - This Chapter is reserved for family farmers
- Chapter 13 – Provides individuals with regular income the ability to repay some or all of their debts through a monthly payment plan. Through filing under this Chapter, interest will stop accruing on most of your debts and they will all be consolidated into one monthly payment, which is determined through an analysis of your income and expenses. If you are married, then you may file individually or jointly with your spouse. Your payment plan will last between 3 and 5 years, and the debts not paid through your plan will be discharged at its end.
5 – CHAPTER 7
A Chapter 7 filing may allow you to discharge all or most of your debts in as little as 90-120 days. In most cases, debtors are able to obtain a discharge of debts and retain all of their property. On the other hand, Chapter 7 does not allow you to catch up on missed payments and therefore if your goal is to keep a home or car in the face of a coming foreclosure or repossession, then a Chapter 13 filing would be more appropriate.
6 – CHAPTER 13
Through a Chapter 13 Plan, you will make a monthly payment to a Chapter 13 Trustee. The amount of this payment is determined based upon an analysis of your income and expenses, and will allow you the opportunity to pay some of your debts, including late mortgage or car payments in order to prevent a foreclosure or repossession. Furthermore, if you have assets that would be unprotected in a Chapter 7 filing, then you may be able to protect them by paying more through your plan than those assets are worth.
7 – WHAT PROPERTY CAN I KEEP?
The vast majority of Chapter 7s are “no asset” cases, in which debtors retain all of their property. This is possible because both Federal and State laws allow you to “exempt” certain amounts of property from the bankruptcy. In order to determine whether you may exempt certain property, we will need to determine its fair market value. If you own your home, you will have to have it’s value appraised prior to filing. Furthermore, if you own any valuable collections or antiques, you may have to have them appraised as well. If you own assets that cannot be protected through exemptions, then you may be able to protect these assets by filing a Chapter 13.
8 – WILL BANKRUPTCY WIPE OUT ALL MY DEBTS?
A bankruptcy discharge will eliminate most debts. However, there are some specific exceptions that will not be discharged such as money owed for child support or alimony. Student loans and tax liabilities are not generally dischargeable, however in some circumstances they may be. Additionally, debts obtained under false pretenses or fraud are not dischargeable.
9 – WILL I HAVE TO GO TO COURT?
In most bankruptcy cases, you will not have to go to court. In all cases, however, there is a Meeting of Creditors that is typically held between 30-45 days after filing. At this meeting, a Trustee will question you regarding your petition in order to ensure that it is accurate. Your creditors will be notified of the meeting, but they rarely attend. The meeting is held in Boston and typically lasts between 10-15 minutes.
10 – WILL BANKRUPTCY RUIN MY CREDIT?
It depends. A bankruptcy filing will appear on your credit report for 10 years, but your personal circumstances will dictate the affect it has on your personal credit rating. If you have already missed several payments, then your credit has already been damaged. Additionally, there are strategies to rebuilding credit following a bankruptcy that may allow you to rebuild your credit to pre-bankruptcy levels in a few years.
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