Bankruptcy FAQ's

1. What debts are cleared after filing bankruptcy?
Most unsecured debt, including credit cards, unpaid bills and mortgages can be eliminated after you file for a bankruptcy. The only things that will not be erased are child support payments and alimony, DUI or other fines owed to the government for crimes and infractions, student loans and income tax back payments. This allows Americans who are over their heads in debt to get a fresh start in life.

2. What is a chapter 7?
This is known as a straight bankruptcy. The debtor turns all of his or her non-exempt property over to a trustee, who distributes its value to creditors. The debts usually clear within four months, and the debtor has the opportunity to start all over again. This is the option chosen by most individuals who are truly struggling to pay their monthly bills on time and are being harassed by collectors.

3. What is a chapter 13?
This option is not a complete filing for bankruptcy. Instead of giving all property over for liquidation, the debtor works out a plan to pay off debts in approximately three to five years. This is more suitable for debtors with a steady income who can manage to pay their monthly bills, but are struggling to pay back perhaps thousands of dollars in collected debt. This is also known as a reorganization bankruptcy.

4. After I file, will the creditors leave me in peace?
By law, creditors, including banks and credit card companies are required to stop harassing you after you complete the necessary documents. They are not allowed to initiate any lawsuits or even call you at home to request payment. Your life can soon get back to normal without all of the annoying calls and harassing voice messages. If creditors continue to ask for payment, you may be able to press charges to have them stop.

5. Will my bankruptcy hurt my spouse?
So long as only your name appears on any documents concerning the debt, such as bills or credit cards, then your bankruptcy will not affect the financial status of your husband or wife. However, contracts that require two signatures, such as the purchase or sale of real estate, will be listed under both names and can hurt your spouse's finances

6. Will other people find out that I declared bankruptcy?
Bankruptcy filings are public record, but many people do not realize this, so unless you tell them that you recently filed for bankruptcy, there is no way that your friends, family or neighbors will find out. It is simply public record, so that creditors can know your history and not give you any credit with their company, if they so choose, in the future. The bankruptcy will remain on your credit record for 10 years after you file.

7. Why do most people file for bankruptcy?
An overwhelming portion of the population file for bankruptcy after they are hit with a pile of expensive and unexpected medical bills. Studies show that half of the filings were because of this very reason. Often, people do not save up for medical emergencies that crop up in life. Without insurance, the out-of-pocket expense for surgery and medications can be crippling.

8. What property of mine will be liquidated to pay my creditors?
The bankruptcy trustee will liquefy your real estate holdings and vehicles (including automobiles and boats) to ensure that all of your debts are paid off. Only items that are tax-exempt are not eligible for liquidation. The trustee then holds the rights to this property until your debt is paid and you can begin to purchase back your belongings.

9. How often can I file for bankruptcy?
If you find yourself in debt once again, you can opt to file for bankruptcy again. For a chapter 7 bankruptcy, the debtor must wait eight years in between filings. This is not recommended, but is often necessary for people who just cannot seem to get their heads above water, again for anyone struggling to pay mountains of medical bills or any other unexpected expenses.

10. Will my credit be ruined for life?
Absolutely not. In fact, many creditors may consider you to be less of a risk after you file for bankruptcy than before, because it is not incredibly likely that you will need to file again. Also, the filing is expunged from your record after ten years, so creditors will not be able to see your past mistakes after this point. Debtors who file for bankruptcy can still go on to apply for mortgages and credit cards after a bankruptcy with little difficulty.

11. Can I lose my job after filing for bankruptcy?
Federal law prohibits employers from discriminating against their employees, based on their financial status. Even if your boss was familiar with public records law and found that you had filed for bankruptcy, he or she would not be allowed to fire you, based on this information. If you found out that he or she fired you for this reason, you may be able to take him or her to court for discrimination.

12. How much does it cost to file for bankruptcy?
Filing the documents for a chapter 7 bankruptcy costs around $300. Lawyers fees may also cost anywhere from $1,000 to $2,000, with a free initial consultation. Some debtors choose to represent themselves, which is possible with a great deal of preparation and organization, but some states require that debtors hire a lawyer to represent themselves at the 341 meeting.

13. What is the 341 meeting?
At this hearing, the debtor goes before creditors and an examiner, usually appointed by the government, and answers questions about his or her financial situation under oath. It is much like a court hearing, but its outcome is to determine whether or not the debtor qualifies for bankruptcy. In some states, a lawyer's presence is mandatory.

14. What is the difference between a secured and an unsecured debt?
A secured debt is tied to some property of the debtor, to give the creditor some collateral. For example, a bank will often hold a lien on real estate or a vehicle, to ensure that the debtor will pay their bills. Unsecured debt, like credit cards and some types of loans, cannot claim any property of the debtor and simply has to rely on interest payments and late fees to discourage defaults on bill payment.

15. Can creditors come after a co-signer of a loan if the primary signer files bankruptcy?
Yes. Even though it is illegal for the creditors to continue to harass the debtor who filed for bankruptcy, they can turn to co-signers of a loan to make payments, until the liquidation from the seizure of the debtor's property comes through. This is why it is extremely important for loan co-signers to be prepared to pay for a loan if the primary signer defaults on their payments and declares bankruptcy.

16. Is there anything I can do to remove a bankruptcy from my credit report?
No. Your only option is to wait for the ten-year period to elapse, so that it will be expunged from your record. You may however, file an explanation for your decision to file bankruptcy along with your credit report. This will allow creditors to see if you had to file bankruptcy for a family emergency and perhaps be more sympathetic, when choosing whether or not to lend you money in the future.

17. Can creditors object to a bankruptcy filing?
Yes. After you fill out the necessary documents and hold the 341 meeting, creditors have up to 60 days to determine if they would like to discharge each individual debt. If they all agree to discharge, the bankruptcy is granted. If they object, a trial is held and an agreement is reached that satisfies both creditors and debtors. Chapter 7 and 13 filings are completed in the same way.

18. When should I stop using my credit cards if I plan to file for bankruptcy?
The creditors will suspect fraud if you make large purchases on credit right before you declare bankruptcy, so if you feel that you will have to file in the future, you should stop using them immediately, to avoid any complications. It is generally recommended that you stop making purchases within 40 days of filing and stop taking out cash advances 20 days before filing.

19. What if I realized that I made a mistake on my original filing?
Amendments to the original filing can be made, if the debtor realizes that he or she left a debt out of the schedule or discovers that an entry is inaccurate. The document is legally binding, and perjury can be committed if you do not take extreme care with your initial filing, so make careful notes beforehand and have a lawyer look it over before you submit.

20. Does divorce cancel out my co-signing agreement?
No. Even if you divorce your spouse, if he or she files for bankruptcy and your name is on a loan, either as a secondary or co-signer, you are responsible for paying off the debt. You may be able to make some specifications in your divorce decree about this situation, but it will not stop creditors from contacting you to pay the debt.