What can bankruptcy do for me?
Bankruptcy is an option when you owe more money than you can be expected to pay in the near future. We have come a long way since the time of debtor's prison when your creditors could have you jailed until you paid a bill. Today, the law allows an honest debtor to have a court "discharge" or cancel most or all of his or her debts in order to make a fresh start. This form of bankruptcy is sometimes called "straight" bankruptcy, or Chapter 7 bankruptcy.
You can use bankruptcy to discharge your debts no matter how you got into debt as long as you were honest. Perhaps you or your spouse lost a job and have not been able to pay your rent or make your car payments for several months. Or perhaps you have been unable to make your credit card payments due to a divorce, or you have medical bills as a result of an illness or injury.
Chapter 7 bankruptcy usually means that most, and sometimes all, of your debts will be canceled. Except for debts that you must pay. Going through bankruptcy generally stops your creditors from "garnishing" or taking your wages. This means your employer cannot be forced to give part of your salary to your creditors to help pay off your discharged debts.
Bankruptcy, however, will not solve all of your money problems. If you are out of work, bankruptcy can cancel your old debts, yet you still must find a way to pay new bills and ongoing expenses.
What happens to my property when I go through bankruptcy?
Most of your possessions will be exempt under the law, which means they cannot be sold to pay your creditors. We will help you make a list of your exemptions. If the Trustee or your creditors object to any items on the list, the court will hold a hearing.
If my loan payments are discharged, will my co-signer have to pay?
Yes. A co-signer is a person who made a legal agreement to pay off your debt if you fail to do so. And, he or she is responsible for the debt even if you file Chapter 7 bankruptcy. Your creditors cannot ask your co-signer to pay off a loan if you have a Chapter 13 plan.
Can all my debts be discharged or cancelled?
Bankruptcy filings can address many of your debts, including credit card bills, medical bills and loan payments. But the law says that some debts cannot be discharged even if your creditors do not object to having them canceled.
Debts that are rarely discharged:
- Most income taxes and related penalties and interest.
- Student loans unless a bankruptcy judge rules that repayment will be too difficult for you or your family.
- Any domestic support obligations.
- Debts that arise as a result of willful or criminal activity.
How long does it take to go through bankruptcy?
After your bankruptcy papers are filed, you can stop paying your creditors even though your debts will not be discharged for about four months. However, if any creditor objects to have a debt canceled, it may take longer.
Approximately 30 days after your bankruptcy papers are filed, a "meeting of creditors" is held. Creditors do not have to attend because they are represented by the Trustee. You must be present and testify under oath. The Trustee and any creditors who attend the meeting can ask questions about your assets. You must be honest. Your discharge may be denied if:
- You lied about your assets.
- You intentionally gave false information on the bankruptcy forms or to the Trustee, such as purposefully failing to list a creditor.
- You failed to obey a court order.
- You transferred or hid an asset to keep your creditors from getting paid.
- You failed to provide any requested documentation.
Once the judge has decided any disputes between you and your creditors, your debts will be discharged within 90 days.
How do I start a bankruptcy action?
You will have to file a bankruptcy petition with court fees with the nearest United States Bankruptcy Court.
Additionally, you must provide substantial information on the bankruptcy petition. For instance, you will need to provide information concerning your income, bank accounts, tax returns, real estate, personal property and much more. You will be required to provide tax returns, bank statements, pay stubs and other financial records.
Can I file straight bankruptcy at any time?
Yes, as long as your debts were not previously discharged in a Chapter 7 less than eight years ago.
As soon as you file the proper bankruptcy documents in court, you can stop making payments on your old bills, except for alimony and child support. This is allowed even though your debts may not be canceled officially for several months, although this may not apply to most secured debts.
The law says your creditors are not allowed to garnish your wages, repossess collateral or sue you without court permission. They cannot bother you with letters or telephone calls asking for payment. If your creditors do not believe that you have filed bankruptcy, ask them to call your lawyer or check with the bankruptcy court.
What if I have a major debt problem before all my debts are paid?
You might have a long illness or lose your job. You can switch from a Chapter 13 debt reorganization plan to a Chapter 7 filing. When you file straight bankruptcy, the court may cancel some or all of your remaining debts.
What if I just need more time to pay my debt?
An alternative to a Chapter 7 bankruptcy is a Debt Reorganization Plan or Chapter 13. These plans allow you to pay off part or all of your debts over a period of time under court supervision. These plans can be completed anywhere between three and five years.
You can use a Chapter 13 plan if you have steady income. This means you can be a wage earner, the owner of a small business or someone who receives a pension, Social Security or welfare benefits.
Once you file under Chapter 13, all court actions stop and cannot proceed without bankruptcy court approval. Creditors also are not allowed to write or telephone you demanding payment.