Bankruptcy Frequently Asked Questions (FAQ)
WHAT IS CHAPTER 7 BANKRUPTCY?
Chapter 7 bankruptcy is a filing in which the individual filing for bankruptcy has very few assets and is primarily delinquent in unsecured debt. Unsecured debt is debt in which the borrower did not put up any initial collateral in exchange for the credit.
WHAT IS CHAPTER 13 BANKRUPTCY?
Chapter 13 bankruptcy is often referred to as the Wage Earner’s Bankruptcy. Unlike Chapter 7, Chapter 13 bankruptcy gives the debtor the opportunity to pay off all, or parts, of their debt over time rather than liquidating their property or facing steep penalties. This chapter of bankruptcy is for individuals that have a consistent income, however, they need a little more time to pay off their debts than the creditors are allowing. In this chapter of bankruptcy, you can pay the debt off over a course of 3 to 5 years.
WHAT IS CHAPTER 11 BANKRUPTCY?
Chapter 11 bankruptcy cases are typically filed by corporations, limited liability companies, and business partnerships. Individuals that are in substantial debt and have too much income to qualify for Chapter 7 or Chapter 13 bankruptcy may also apply for Chapter 11 as well.
CAN BANKRUPTCY DISCHARGE STUDENT LOAN DEBT?
It is technically possible to discharge student debt through bankruptcy. However, it is very difficult and it requires proof of "undue hardship" in most cases.
DOES BANKRUPTCY CLEAR TAX DEBT?
While some types of tax debt can be discharged in bankruptcy, it's subject to specific conditions and limitations, making it not a straightforward process.
WHAT ARE FINANCIAL RELIEF AND REPAIR OPTIONS AVAILABLE TO ME?
There are many financial relief and repair options available to help do this. These include debt settlement, credit repair, loan consolidation, and bankruptcy.
WHAT IS THE BANKRUPTCY LIQUIDATION PROCESS LIKE?
Bankruptcy liquidation involves selling a debtor's non-exempt assets to pay creditors, followed by discharge of remaining eligible debts. The process is overseen by a court-appointed trustee who distributes proceeds according to a statutory priority system.
SHOULD I PAY OFF MY CHAPTER 13 BANKRUPTCY EARLY?
Paying off your Chapter 13 bankruptcy early can save you interest and help rebuild your credit sooner, but consult with your bankruptcy attorney first. Early payoff might trigger a "disposable income" review that could increase what you owe to unsecured creditors.
HOW LONG DOES IT TAKE TO FILE FOR CHAPTER 7 BANKRUPTCY?
Preparing and filing Chapter 7 bankruptcy typically takes 2-4 weeks to gather documents, complete credit counseling, and submit paperwork. After filing, the process usually takes about 3-6 months from the creditors' meeting until you receive your discharge.
WHAT DOCUMENTS DO YOU NEED WHEN YOU FILE FOR BANKRUPTCY?
When filing for bankruptcy, you'll need tax returns, pay stubs, bank statements, property deeds, vehicle titles, and a complete list of debts and assets. You must also provide proof of completing credit counseling and a detailed accounting of your monthly income and expenses.
DOES A BANKRUPTCY AUTOMATIC STAY PROTECT ME FROM CREDITORS?
The bankruptcy automatic stay immediately halts most collection actions, including lawsuits, wage garnishments, foreclosures, and debt collection calls, though certain exceptions exist for child support, tax proceedings, and criminal cases.
CAN MY STIMULUS CHECK BE GARNISHED?
Federal stimulus checks are generally protected from garnishment by private creditors and debt collectors, but they may be intercepted for unpaid child support, federal taxes, or certain state debts depending on the specific legislation.
WHAT HAPPENS TO YOUR TAX REFUND IN A BANKRUPTCY?
Tax refunds received or expected during bankruptcy may be considered part of your bankruptcy estate and potentially seized by the trustee to pay creditors, though exemptions vary by state and timing.
CAN I GET A MORTGAGE AFTER CHAPTER 7 BANKRUPTCY?
You can typically qualify for a conventional mortgage 2-4 years after a Chapter 7 discharge, though FHA and VA loans may be available in as little as 1-2 years with demonstrated financial recovery and good credit practices.
WHAT SHOULD I CONSIDER WHEN FILING FOR BANKRUPTCY DURING A DIVORCE?
Filing for bankruptcy during divorce requires strategic timing to determine whether filing jointly before divorce or individually after separation better protects assets, while considering how the automatic stay affects property division, support obligations, and which debts will ultimately be discharged.
WILL MY EMPLOYER FIND OUT ABOUT MY BANKRUPTCY?
Your employer generally won't discover your bankruptcy unless they are a creditor, you work in a position requiring financial clearance, or they conduct a credit check or background screening that includes bankruptcy records.
HOW SOON CAN I APPLY FOR CREDIT AFTER A BANKRUPTCY DISCHARGE?
You can apply for credit immediately after bankruptcy discharge, though you'll likely only qualify for secured credit cards and high-interest loans initially, with access to better terms improving gradually over the next 1-2 years as you rebuild your credit.
HOW LONG DOES A BANKRUPTCY STAY ON CREDIT REPORTS?
A bankruptcy remains on your credit reports for 7 years from the filing date for Chapter 13 or 10 years for Chapter 7, though its negative impact gradually diminishes over time.
WHAT ARE THE ADVANTAGES OF FILING BANKRUPTCY?
Filing bankruptcy provides immediate debt relief through an automatic stay on collection actions while allowing you to potentially discharge unsecured debts, protect certain assets through exemptions, and create a fresh financial start with the opportunity to rebuild credit over time.
WHAT IS THE DOWNSIDE OF FILING FOR BANKRUPTCY?
Filing bankruptcy severely damages your credit score for 7-10 years, may require liquidating assets, becomes public record, can be expensive with filing and attorney fees, limits future borrowing options, and might not discharge certain debts like student loans or tax obligations.
CHAPTER 7 VS 13 BANKRUPTCY - WHAT SHOULD YOU FILE?
Chapter 7 is best if you have limited income and primarily unsecured debts you want discharged quickly, while Chapter 13 is preferable if you have regular income, want to keep secured assets like your home, and can commit to a 3-5 year repayment plan to catch up on missed payments.
WHAT IS THE BANKRUPTCY MEANS TEST?
The bankruptcy means test compares your income to your state's median income to determine if you qualify for Chapter 7 bankruptcy or must file Chapter 13 instead, calculating your disposable income after allowed expenses to assess your ability to repay creditors.
DOES FILING BANKRUPTCY STOP FORECLOSURE?
Filing bankruptcy triggers an automatic stay that temporarily halts foreclosure proceedings, giving you time to either catch up on payments through a Chapter 13 repayment plan or providing a few additional months in your home before foreclosure resumes after a Chapter 7 discharge.
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WHEN SHOULD YOU FILE BANKRUPTCY?
You should file bankruptcy when your debts have become unmanageable despite good-faith efforts to repay, collection actions are threatening your basic needs, and after consulting with a bankruptcy attorney who confirms it's your best financial option given your specific circumstances.
BANKRUPTCY FOR STUDENT LOANS?
Student loan debt is rarely dischargeable in bankruptcy except in cases of "undue hardship," which requires proving through an adversary proceeding that you cannot maintain a minimal standard of living while repaying the loans and that your financial situation is unlikely to improve.
WHAT ARE UNSECURED DEBTS?
Unsecured debts are financial obligations not backed by collateral or property, such as credit card balances, medical bills, personal loans, and most utility bills.
WHAT DOES FILING FOR BANKRUPTCY MEAN?
Filing for bankruptcy means petitioning the federal court for legal protection from creditors under either Chapter 7 (liquidation) or Chapter 13 (reorganization) of the Bankruptcy Code to address overwhelming debt through either discharge or a structured repayment plan.
WILL MY CREDIT SCORE RISE WHEN BANKRUPTCY COMES OFF?
Your credit score will likely increase when bankruptcy falls off your credit report after 7-10 years, but the exact improvement depends on how you've managed credit since filing and whether you've established positive payment history during that time.
HOW LONG DOES THE BANKRUPTCY PROCESS TAKE?
A typical Chapter 7 bankruptcy takes about 3-6 months from filing to discharge, while Chapter 13 bankruptcy requires following a court-approved repayment plan for 3-5 years before receiving a discharge.
HOW DO I DETECT A FORECLOSURE SCAM?
Foreclosure scams often involve upfront fees, promises of guaranteed results, requests to transfer property titles or make payments to someone other than your lender, pressure to act immediately, and companies that contact you unsolicited or ask you to sign documents without reading them fully.
WHY HIRE A BANKRUPTCY LAWYER?
A bankruptcy lawyer provides crucial expertise to navigate complex filing requirements, maximize asset protection through exemptions, represent you at creditor meetings, ensure proper debt classification, address potential challenges to discharge, and help avoid critical errors that could lead to your case being dismissed.
WHAT DOESN'T BANKRUPTCY DISCHARGE?
Bankruptcy doesn't discharge student loans (except in rare hardship cases), recent tax debts, child support, alimony, court-ordered restitution, debts from fraud or willful injury, HOA fees, some government fines, and debts not listed in your filing paperwork.
WHAT ARE BANKRUPTCY ATTORNEY FEES?
Bankruptcy attorney fees typically range from $1,000-$3,500 for Chapter 7 cases and $3,000-$5,000 for Chapter 13 cases, varying based on case complexity, geographic location, the attorney's experience level, and whether any adversary proceedings are required.
WHAT IS SECURED DEBT?
Secured debt is a financial obligation backed by collateral that the creditor can legally seize if you fail to make payments, such as mortgages secured by homes, auto loans secured by vehicles, and some types of personal loans secured by other assets.
WHAT IS EMERGENCY BANKRUPTCY FILING?
An emergency bankruptcy filing (also called a "skeleton" or "bare bones" filing) allows you to quickly file minimal paperwork to establish an automatic stay and stop immediate creditor actions like foreclosure or repossession, giving you 14 additional days to complete the full bankruptcy petition.
WHAT IS A BANKRUPTCY TRUSTEE?
A bankruptcy trustee is a court-appointed official who administers your bankruptcy case by reviewing your paperwork, collecting and liquidating non-exempt assets in Chapter 7, ensuring creditors are paid appropriately, and overseeing repayment plans in Chapter 13 cases.
IS PROPERTY EXEMPT IN BANKRUPTCY?
Bankruptcy exemptions protect certain property from liquidation by creditors, with amounts varying by state law, but typically include some equity in your primary residence, necessary household goods, retirement accounts, and tools of your trade, though luxury items and non-essential assets usually remain non-exempt.
WILL CREDIT COUNSELING HELP MY BANKRUPTCY?
Credit counseling is legally required both before filing bankruptcy and before receiving a discharge, but while it may help you explore alternatives to bankruptcy, it rarely affects the bankruptcy outcome once you've decided to file.
WHAT HAPPENS TO YOUR PROPERTY IN BANKRUPTCY?
In Chapter 7 bankruptcy, non-exempt property may be sold to pay creditors while in Chapter 13 you typically keep all property but pay its value through your repayment plan, with exemption laws varying by state determining what specific assets you can protect regardless of which type you file.
WHAT ARE THE DIFFERENCES IN BANKRUPTCY LAWS ACROSS THE UNITED STATES?
While federal bankruptcy laws provide the framework throughout the US, state laws differ significantly regarding homestead exemptions, property exemption amounts, means test median income thresholds, and whether debtors can choose between federal or state exemption systems when filing.
WHAT ARE BANKRUPTCY LAWS IN ARIZONA?
Arizona bankruptcy follows federal bankruptcy law but uses state-specific exemptions that include a $150,000 homestead exemption, protection for up to $6,000 in vehicle equity, $500 per item for household goods (up to $6,000 total), and requires income below the state's median to qualify for Chapter 7 under the means test.
WHAT IS ADVERSARY PROCEEDING IN BANKRUPTCY?
An adversary proceeding is a separate lawsuit filed within a bankruptcy case to resolve specific disputes, such as determining the dischargeability of particular debts, challenging fraudulent transfers, seeking to deny the entire discharge, or addressing lien validity issues.
WHAT ARE HOMESTEAD EXEMPTIONS IN BANKRUPTCY?
Homestead exemptions in bankruptcy protect a specific dollar amount of equity in your primary residence from creditors, with limits varying dramatically by state from as little as $5,000 in some states to unlimited protection in others like Florida and Texas.
WHAT IS THE 341(A) MEETING OF CREDITORS IN BANKRUPTCY?
The 341(a) Meeting of Creditors is a mandatory hearing where the bankruptcy trustee questions you under oath about your assets, debts, and financial affairs, though creditors rarely attend despite being invited, and it typically lasts only 5-10 minutes if your paperwork is in order.
HOW DOES BANKRUPTCY WORK IN THE GIG ECONOMY?
When filing bankruptcy as a gig worker, your irregular income requires providing detailed earnings documentation over a longer period, business assets may need separate classification, you may need to distinguish between personal and business debts, and Chapter 13 might be more challenging to qualify for without demonstrating steady income.
WHAT IS A "CRAMDOWN" IN BANKRUPTCY?
A cramdown in bankruptcy is a Chapter 13 provision that allows you to reduce secured debt on certain assets (like vehicles, furniture, or investment properties but not your primary residence) to their current market value rather than the full loan amount when the collateral is worth less than what you owe.A cramdown in bankruptcy is a Chapter 13 provision that allows you to reduce secured debt on certain assets (like vehicles, furniture, or investment properties but not your primary residence) to their current market value rather than the full loan amount when the collateral is worth less than what you owe.
CAN MEDICAL DEBT CAN LEAD TO BANKRUPTCY?
Medical debt is a leading cause of personal bankruptcy filings in the United States, with unexpected healthcare costs often overwhelming household finances even for those with insurance due to high deductibles, out-of-network charges, and lengthy treatment costs.Medical debt is a leading cause of personal bankruptcy filings in the United States, with unexpected healthcare costs often overwhelming household finances even for those with insurance due to high deductibles, out-of-network charges, and lengthy treatment costs.
WHAT IF YOUR BANKRUPTCY IS DISMISSED?
If your bankruptcy is dismissed, the automatic stay immediately terminates, creditors can resume collection activities including foreclosure and repossession, you may face a 180-day waiting period before refiling, and if dismissed with prejudice, you could be barred from discharging the same debts in future bankruptcy filings.
WHAT ARE THE CONSEQUENCES OF BANKRUPTCY FRAUD?
Bankruptcy fraud is a federal crime punishable by up to 5 years in prison, fines up to $250,000, loss of discharge rights, dismissal of your bankruptcy case, and potential additional civil penalties when you deliberately conceal assets, make false statements, file multiple times in different jurisdictions, or bribe officials.
HOW DOES BANKRUPTCY WORK FOR VETERANS?
Veterans follow the same bankruptcy process as civilians but receive special protections including exemptions for VA disability benefits, protection from means testing if debt is primarily from business or active duty, access to veterans-focused financial counseling, and potential access to VA programs designed to help avoid bankruptcy altogether.
ARE DIGITAL ASSETS EXEMPT IN BANKRUPTCY?
Digital assets such as cryptocurrencies, NFTs, and digital securities must be disclosed in bankruptcy filings and are typically non-exempt property subject to liquidation by the trustee, though their valuation and treatment varies by jurisdiction and is still evolving in bankruptcy law.
HOW DOES BANKRUPTCY WORK IN NON-MARRIED RELATIONSHIPS?
In non-married relationships, each partner must file bankruptcy separately as joint filings are only permitted for legal spouses, meaning individual debts remain the sole responsibility of each person, though shared assets and debts may become complicated if commingled finances exist despite the lack of legal marriage.
WHAT HAPPENS TO YOUR HOME IF YOUR REALTOR GOES BANKRUPT?
When your realtor files bankruptcy, it generally has no direct impact on your home ownership or pending transaction, as the realtor is merely an agent in the transaction rather than a party with rights to your property.
WHAT ARE PETITION MILLS? NAVIGATING A BANKRUPTCY SCAM
Petition mills are predatory businesses that charge excessive fees for bankruptcy paperwork preparation without providing legal advice, often targeting financially vulnerable individuals with misleading claims about stopping foreclosure or eviction, frequently resulting in improperly filed cases that get dismissed.
WHAT IS A CROSS-BORDER BANKRUPTCY?
Dealing with bankruptcy is challenging enough, but when it involves assets, debts, or operations in multiple countries, the complexity increases significantly. Cross-border bankruptcy requires navigating various legal systems, understanding international treaties, and coordinating with foreign courts and creditors. In this comprehensive guide, we’ll explore the intricacies of cross-border bankruptcy and why hiring an international bankruptcy attorney is essential for successfully managing these cases.
WHAT IS CHAPTER 7 BANKRUPTCY IN TEXAS?
Of the 6 chapters of bankruptcy that exist, Chapter 7 is the most commonly filed in the United States. It’s designed to provide a fresh start for individuals or businesses struggling with overwhelming debt. In Texas, the filing process can be complex, which makes it essential to have a clear understanding of bankruptcy – or, better yet, hire someone who does.
WHAT ARE THE 5 THINGS TO KNOW ABOUT EMERGENCY BANKRUPTCY FILINGS?
If you’ve begun to research bankruptcy filing, it probably sounds like a painful, convoluted process. It is certainly convoluted. And if you are facing foreclosure and have debt collectors threatening to garnish your checks, seize your assets, or put liens on your property, it may seem like you do not have time to prepare a lengthy bankruptcy filing, including credit counseling and court hearings. But have you heard of emergency bankruptcy filing?
CAN BANKRUPTCY STOP EVICTION?
Facing eviction can be incredibly stressful, especially when financial challenges make it difficult to pay rent. For those considering bankruptcy, a common question is whether filing can halt an eviction. The answer largely depends on the type of bankruptcy you file and the stage of your eviction process. This article will explore how bankruptcy can stop eviction temporarily, as well as the limitations and benefits of filing bankruptcy when you’re at risk of eviction.