Our Practice About Protection: FAQs

Frequently Asked Questions

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy, also known as “liquidation,” is a legal process by which most unsecured can be discharged. Chapter 7 bankruptcy is known as liquidation because any non-exempt assets the debtor has may be liquidated (sold) by the trustee for the benefit of creditors. Many Chapter 7 bankruptcy debtors have no non-exempt assets, and so there is no liquidation, and unsecured debts are simply discharged. There are, however, certain unsecured debts that are not dischargeable in Chapter 7 bankruptcy.

Does my current income allow me to file Chapter 7 bankruptcy?

To file for Chapter 7 bankruptcy, you must qualify under the Chapter 7 means test. The means test first compares your income to the median income in your state. If your income is lower than the median income in your state and you are otherwise qualified, you can file for Chapter 7 bankruptcy. However, if your income is greater than the median income in your state, other calculations regarding your income and allowable expenses are required to determine whether or not you can file for Chapter 7 bankruptcy. We will help you calculate your income and review the means test to determine the proper qualification.

Is Chapter 7 bankruptcy the right option for me?

Chapter 7 bankruptcy is a good option for people who have a large amount of (for which they are unable to meet their financial obligations) and have few assets.

Among other benefits, filing Chapter 7 bankruptcy may:

 eliminate most or all of your unsecured debt, allowing you to rebuild your ;  eliminate your unsecured debt through a Chapter 7 debt discharge;  prevent your creditors from collection and harassment through an automatic stay order; and  keep you from losing your exempt assets like your home or car.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is a full or partial repayment plan administered by the bankruptcy court. You submit a plan for approval and, when a plan is approved, make monthly payments to the bankruptcy trustee. The trustee makes payments to creditors in accordance with the terms of the plan. The repayment period may be from 3-5 years. At the end of the repayment period, if all payments have been made according to the plan, remaining unsecured, dischargeable debt may be discharged.

Who can file Chapter 13 bankruptcy?

In one sense, it may be easier to qualify for Chapter 13 bankruptcy than for Chapter 7 bankruptcy. There is no means test for Chapter 13 bankruptcy, and some debtors who cannot qualify for Chapter 7 bankruptcy opt to file under Chapter 13 bankruptcy instead. However, Chapter 13 bankruptcy requires that you have a regular income so that you can create a budget and make predictable and reliable payments to the trustee.

Is Chapter 13 bankruptcy the right option for me?

Chapter 13 bankruptcy is often a good option for people who are facing short-term financial setbacks, such as a job loss or illness. It also may be a good choice for someone who is suddenly faced with unexpected expenses. A Chapter 13 bankruptcy can stop mortgage foreclosure and other repossessions.

In short, a Chapter 13 repayment plan can silence creditors through an automatic stay and give a person the chance to repay their debts in three to five years after the bankruptcy filing.

Is Chapter 7 or Chapter 13 bankruptcy better for me?

The answer to this question depends on your specific circumstances. Generally speaking, Chapter 7 bankruptcy is better for people who have a lot of unsecured debts, such as credit card debt and medical bills. If you have little property, your income is low, and most of your debts are unsecured, you might want to consider Chapter 7 bankruptcy. Chapter 13 bankruptcy, on the other hand, tends to be a better option for those who have regular income and non-exempt property they'd like to keep. Our law firm can review your specific financial circumstances and advise you regarding bankruptcy filing and other options.

May a husband and wife file jointly?

Yes. A husband and wife may file a joint petition under Chapter 7 or Chapter 13. If a joint petition is filed, only one set of bankruptcy forms is needed and only one filing fee is charged. However, if only one spouse is liable for most or all of the debt, only that spouse would file a single petition.

Under what conditions should both spouses file?

Both husband and wife should file if one or more substantial dischargeable debts are owned by both spouses. If both spouses are liable for a substantial debt and only one spouse files, the creditor may later attempt to collect the debt for the nonfiling spouse, even if he or she has no income or assets. How does the filing of a Chapter 7 case affect collection and other legal proceedings that have been filed against the debtor in other courts?

The filing of a Chapter 7 case automatically stays (or stops) virtually all collections and other legal proceedings pending against the debtor. A few days after a Chapter 7 case is filed, the bankruptcy court mails a notice to all creditors ordering them to refrain from any further action against you. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable to the debtor in damages. Criminal proceedings and actions to collect alimony, maintenance, or support from exempt property or property acquired by the debtor after the Chapter 7 case is filed are not affected by this automatic stay. The automatic stay also does not protect your cosigners and guarantors, and a creditor may continue to collect debts from those persons after you file a Chapter 7 case.

What is a debt discharge?

A debt discharge is a court order releasing you from all of your dischargeable debts and ordering the creditors not to attempt to collect them from you. A debt that is discharged is one that you are released from and never have to pay.

Does the new bankruptcy law affect me?

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was passed by Congress and signed into law by President George W. Bush on April 20, 2005. Since then, there have been various amendments and exemptions to the law.

The most significant change made by the BAPCPA is that there are additional bankruptcy requirements for people seeking bankruptcy (like the debtor education course and credit counseling briefing). A debtor must complete the requirements in order to have a successful bankruptcy. Although this new bankruptcy law has prevented some people from being able to file bankruptcy, most people are not turned down from filing bankruptcy protection.

Will filing bankruptcy affect my credit?

Bankruptcy can be an effective way to regain control and tackle mounting debt. Many people find that their credit scores improve not too long after they file bankruptcy.

Your credit will be affected if you decide to file bankruptcy. Many people who are in a position to file for bankruptcy have already had their credit score adversely effected by a period of general . Your credit-worthiness can sometimes recover faster after filing. Many people who decide to file bankruptcy don’t have the greatest credit to begin with and they find that once their debt is relieved, their credit score starts to improve.

You should also know that most types of bankruptcy will stay on your credit report for a period of seven to ten years. During that time, it will likely have an adverse effect on your credit rating, however, it can also provide you with a chance to “start fresh” and rebuild your credit. Do I really need an attorney or other legal professional to seek bankruptcy protection?

While only a licensed and registered attorney can represent you in bankruptcy court, individuals can act on their own behalf either with or without assistance in preparing a petition and meeting the numerous other filing requirements. The U.S. Bankruptcy Court in Minnesota maintains a very informative website that is an excellent source of background information regarding bankruptcy. It is important, however, to remember that without competent legal counsel you will be entering into a very complex and technical area of the law without a guide. You might cause the irreversible loss of valuable rights and options by missing even a single filing requirement; being late with a deadline; or misinterpreting the Bankruptcy Code, the rules of Civil Procedure or some other nuance of the law, rules, or local practice. Filing an incomplete, inaccurate or inadvisable bankruptcy can result in unanticipated forfeiture of property, diminished protection under the Code, loss of opportunity to re-file for up to eight years and even civil and criminal sanctions. Whether you choose to use legal counsel or not, you will need to be organized and methodical, take accuracy and filing requirements seriously, and not take risks to hide assets and otherwise circumvent the rules.