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10 Most Frequently Asked Bankruptcy Questions

Most people who have never been through the bankruptcy process ask many of the same questions at a typical bankruptcy consultation. At Leftwich Law, we have conducted literally thousands of these consultations over the last 16 years. We have now distilled these questions down to the ten most significant ones commonly asked.  These questions are important since they give the reader a basic understanding of how the bankruptcy process works.

Bankruptcy can help restore your credit

The answers will explain the consequences of bankruptcy law on your financial life, and will dispel some false bankruptcy myths. Please keep in mind that the answers to these ten questions are general in nature and will not apply to everyone. Each person’s financial situation is unique.

Should I file for bankruptcy?

Generally, if you cannot meet your monthly financial obligations, including essential expenses of life such as food, shelter, and clothing without borrowing money from friends or relatives or relying on credit cards, and this is an on-going situation, filing either a Chapter 7 or Chapter 13 bankruptcy may be your best solution to digging out of mounting debt. However, there may be other non-bankruptcy recommendations and options to consider based on your individual situation. In either case consulting with a bankruptcy attorney is your best first step.

What are benefits of filing for bankruptcy?

The benefits of  filing bankruptcy will largely depend on which chapter of bankruptcy you file. In a Chapter 7 bankruptcy most if not all of your consumer debts may be fully discharged which means you will no longer be obligated to pay them. Therein lies the benefit. There are certain debts, however, such as child support obligations, student loans, and taxes that will likely survive your bankruptcy discharge, but which may be easier to deal with without the burden of staggering consumer debt hanging over your head.

In a Chapter 13 bankruptcy case, you will be reorganizing your debts in accordance with your ability to make monthly payments into  a reorganization plan. The main purpose here, and benefit,  may be to prevent the foreclosure of your residence or repossession of your vehicle by taking the amount of back payments still owed and paying them out over 36 to 60 months. This will in theory permit the debtor to maintain his or her current lifestyle so long as timely payments are made into the reorganization plan. If the debtor has little or no income it is unlikely that a feasible reorganization plan will be possible. In that case, filing for Chapter 7 bankruptcy would likely be advised.

The benefits to be derived from filing either Chapter 7 or Chapter 13 will in large part depend on the circumstances of the individual debtor. Arranging a free bankruptcy consultation at Leftwich Law is most advisable.

What is the Means Test?

This Means Test is one of the most important changes of the Bankruptcy Reform Act of 2005. It is basically a formula used in the bankruptcy process to determine if a debtor qualifies for a Chapter 7 bankruptcy, or if his or her income is too high and the debtor must file a Chapter 13 bankruptcy instead. The formula used is based upon whether the debtor’s household income exceeds the average income in the debtor’s home county. If the debtor’s household income exceeds the median, then the debtor’s disposable income will be used to determine whether the debtor qualifies for Chapter 7 or Chapter 13 bankruptcy. There are many variables to calculating this “means test,” and you should not go it alone. Arranging a free bankruptcy consultation at Leftwich Law is most advisable to thoroughly explain the Means Test.

How many times will I have to go to court?

In most cases you will not be going to Court and appearing before a Judge. But you will be attending a meeting of creditors. The purpose of the meeting of creditors is to allow the Trustee and your creditors to ask you about the information in the documents you filed with the Court. YOU MUST ATTEND, PROVIDE PHOTO IDENTIFICATION AND SHOW PROOF OF SOCIAL SECURITY NUMBER.  If you are absent, your case may be dismissed. In some rare instances (i.e., health, incarceration, etc.) a judge may grant a waiver with the trustee’s consent. But please speak with a local attorney, the courts are designed to have the debtor(s) testify about the truth of the bankruptcy documents submitted.

If a creditor challenges the dischargeability of a debt or is attempting to have secured property such as a house or vehicle turned over, it may be necessary for you to attend a hearing before a Judge in open Court. In these situations it is extremely important to be competently represented by a bankruptcy attorney.

I filed bankruptcy about five years ago, when I was married to my first wife. Now I find myself in debt over my head again. When can I file another bankruptcy?

If your first bankruptcy case was filed under Chapter 7, I’m afraid you cannot file another Chapter 7 case at this time. The law will only allow you to file another Chapter 7 case at least eight (8) years from the filing of your last discharged Chapter 7 case. So you will have to wait for that time period to pass before filing another Chapter 7 case.

However, there may be some hope for you. If you are facing a foreclosure, vehicle repossession, wage garnishment or many other judicial actions, other than criminal, and depending on the reason for your present financial troubles you may be able to file bankruptcy under Chapter 13. Generally, under Chapter 13 you would generally reorganize your debts and work out a plan to pay a smaller percentage of your bills back under the protection of the bankruptcy court.  Any of the above actions would be stayed upon the timely filing of a Chapter 7 or Chapter 13 case.

In the event that you have previously filed a Chapter 13 case you must generally wait 6 years before filing another Chapter 13 case. Like many things in the law, as in life, there are some exceptions to this rule. Here are two of them. First, if in your last Chapter 13 case you paid 70% of your creditor claims and it was your best effort; and secondly, you did not receive a bankruptcy discharge or your case was dismissed, then you can re-file a Chapter 13 case immediately.

I hope to buy another house someday. So how long will my bankruptcy stay on my credit report?

This will depend on whether your bankruptcy was dismissed or discharged. A discharged bankruptcy will stay on your credit report for 10 years regardless if it was filed under Chapter 7 or 13.

However, dismissed bankruptcies are reported differently on credit reports. A dismissed Chapter 13 case will remain on your credit report for 7 years, but a dismissed Chapter 7 case will remain on your credit report for 10 years.

Do the Bankruptcy Laws Differ from State to State?

No! The bankruptcy laws are federal statutes and the bankruptcy courts are units of the United States District Courts, all federal courts. Although the bankruptcy courts in one district may interpret laws differently than another district, the laws being interpreted are the same. PLEASE NOTE, each state applies their own  exemption laws differently. Moreover, they apply the exemption laws of other states inconsistently as well. That is why it is advisable to speak with an attorney in the state in which you reside.

If I Am Married, Does My Spouse Also Have to File for Bankruptcy?

Strictly speaking, no, there is no requirement that a married spouse also need to file for bankruptcy. And in some cases this may not be well advised if the spouse is not liable on the debts. If the debtor does not reside in a community property state, commonwealth, or territory (including Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington or Wisconsin) then a non-filing spouse would most likely not be liable for the debt. Furthermore, if the debts of the filing spouse were not acquired during the marriage, there should not be any adverse harm to the non-filing spouse. However, the non-filing spouse’s income and community property “assets” will have to be disclosed in your bankruptcy paperwork.

>If I File for Bankruptcy Will it “Wipe Out” the Debt?

Well . . . yes and no. The bankruptcy discharge is awarded to the person who sought it. So the bankruptcy “wipes out” that person’s obligation to pay the debt (except non-dischargeable debts). So, if there happens to be a co-debtor on the debt, then the creditor can still collect from that co-debtor. So in that case, the debt still exists even after the bankruptcy filing. However, if you are the only person obligated on the debt and you receive a discharge, the debt is effectively wiped out (it technically still exists, but the creditor cannot collect on it).

In the case where a creditor is secured, which means they have a lien on your property (such as a house or a vehicle), the bankruptcy discharge will not wipe out the lien. This means the creditor can foreclose on the property or repossess the vehicle to satisfy the debt.

Should I Reaffirm any of my debts?

Reaffirmation is a debtor’s agreement to remain legally liable for repayment of a debt otherwise dischargeable in a bankruptcy proceeding. For a debt to be legally reaffirmed, strict compliance with the provisions of Bankruptcy Code Section 524 is required. If the debtor wants to keep an automobile after filing bankruptcy, he or she must sign a reaffirmation agreement with the creditor to retain the automobile. There are many issues to consider before reaffirming a debt in a bankruptcy case. The first of course is if you should experience financial problems after your discharge and can no longer pay on the reaffirmed debt you will not be protected from the creditor. The creditor may well file a law suit, obtain judgment, and levy against your wages or other property to collect the debt. Generally, it is ill advised to reaffirm a debt. Reaffirmation is explained in detail when you arrange for a free consultation at Leftwich Law.

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