Bankruptcy Information for Consumers
Our Bankruptcy facts have been reviewed and edited by prominent Bankruptcy attorneys. You can be assured you are receiving clear and unbiased information, however, please consult with your attorney before relying on any information. Your specific situation will require recommendations tailored to your needs.
What is Bankruptcy? Consumers file the majority of bankruptcy cases as opposed to businesses. Most consumers file under either Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. About 70% of cases are Chapter 7 bankruptcies filed by consumers.
Yes! They have to by law! All collecting must stop once the documents are filed. Your creditors must drop all lawsuits, wage garnishments and even collection phone calls demanding a payment. However, your secured creditors (the bank that gave you your car loan, for example) will get the stay lifted if you cannot make your payments.
Your husband or wife will not feel any effects from your bankruptcy as long as they did not sign any agreement or contract to pay on the debt. If they have a supplemental credit card, they are more than likely responsible for that debt. That being said, if you live in the following states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin, you are a resident of a community property state. This means that a spouse can sign a contract for debt without the other spouse’s signature and if that debt should go into default, both people are held liable. There are some exceptions to this rule such as the purchase or sale of real estate. Your attorney will be able to give you information specific to your situation on this matter.
Bankruptcy filings are public records and your bankruptcy may be listed in legal community papers or even the local newspaper. In normal circumstances, your bankruptcy will go unnoticed. The Credit Bureaus will record your bankruptcy and it will remain on your credit file for 10 years.
Your landlord can only evict you in the following situations:
- He obtained a judgement of possession prior to the filing of the bankruptcy petition; or
- There is endangerment to the property or illegal use of controlled substance on the property which occurred within 30 days before the bankruptcy filing.
Your landlord will be required to file with the court and serve you a certificate explaining the exceptions he is taking advantage of to evict you.
This question is up to the individual creditor that you have a card from. If you are discharging your debt (bankruptcy) they will cancel the card unless you reaffirm it. Even cards with a zero balance may be cancelled.
Yes! Banks now offer secured credit cards. Basically a pre-paid credit card, you can usually get one with as little as $200. As you prove your ability to pay your balance down the bank will generally increase the limit. In two years time you may even get a mortgage with terms as desirable as those who did not declare bankruptcy. Banks will be more interested in your down payment and what your income is than the fact that you filed for bankruptcy in the past.
No. Firing you for filing bankruptcy would be discrimination and U.S.C. Sec. 525 makes it illegal.
You will need to perform a statement of intent to the item (such as your car) within 30 days after the date set for the first creditors meeting. Not doing this results in termination of the automatic stay and the creditor is then able to take back the asset, if they wish.
Depending on which state you live in, you will be able to keep certain items.
- The household exemption is now $125,000 if the property was acquired in the last 3.3 years (1215 days). This limit is not applicable to any interest transferred from a previous principal residence (acquired prior to the beginning of such 1,215 day period).
- This value is reduced if there was any sale of nonexempt property made by the debtor to hinder, delay or defraud creditors anytime 10 years before the bankruptcy filing.
- The $125,000 limit is fixed if the court determines the debtor has been convicted of a felony demonstrating that filing was in abuse of the provision of the Bankruptcy Code or the debtor owes a debt as a result of a violation of federal or state securities laws, fiduciary fraud, racketeering, or crimes or intentional torts that caused serious bodily injury or death in the preceding 5 years. This limitation does not apply if the property is “reasonably necessary for the support of the debtor and any dependent of the debtor”.
The state that you use for your exemptions is determined by where you resided during the 730 days (2 years) before filing. If you did not live in a single state in the previous 2 years than you use the state that you spent the majority of the 180 day period preceding the 2 year period. Or, if the preceding renders you ineligible for any exemptions, then the debtor is allowed to choose the federal exemptions.
Your trustee will liquidate assets that are in excess of your allowed personal exemption, or non exempt assets such as, real estate, automobiles and boats.
Chapter 7 cannot be filed if you were discharged from Chapter 7 or Chapter 11 in the last 8 years.
You cannot file Chapter 13 if you received a discharge under Chapter 7, 11 or 12 in the last four years, or if you received a discharge under Chapter 13 in the last two years.
You must receive a pre-bankruptcy certificate and budget analysis before filing.
Bankruptcy documents are filed with the Court. This results in an immediate stay. All collection and legal actions must stop.
Your creditors are advised by the clerk that a petition has been filed. Debtors that wish to file for Chapter 7 or Chapter 13 bankruptcy must provide a copy of a tax return for the period for which the return was most recently due, to the trustee at least seven days prior to the 341 meeting.
Day 20-Day 40:
The creditors meet at the Court (341 meeting) which usually lasts less than 5 minutes. The debtor must attend this meeting. Creditors usually do not attend and only receive a few minutes to ask questions if they do decide to be present. The trustee assigned to the case presides over the meeting which is tape recorded or documented by a court reporter. The trustee will ask you questions, under oath, such as:
- Did you read the schedules before signing? Did you list all of your assets? Did you list all of your debts? Are the schedules accurate? Do you want to make any corrections to the schedules? Are you cars insured? Have you destroyed your credit cards?
The trustee will ensure that the debtor is aware of the following: The effect on credit history, the effect of receiving a discharge, the effect of reaffirming a debt, the ability to file a petition under a different chapter.
Day 20-Day 30 and after:
The trustee will sell any of your assets that are not exempted by bankruptcy rules. The money from the sale will be distributed to your creditors. If anyone owes you money, the trustee can pursue causes of action which are lawsuits belonging to you. The trustee can also undo security interests and other transfers of property that occurred and were in violation of bankruptcy rules.
Day 30 (after the 341 meeting):
Debtors must perform a statement of intent as to secured property (a vehicle) within 30 days after the date set for the first creditors meeting. If the debtor fails to redeem the property or reaffirm the debt within 45 days after the s. 341 meeting the automatic stay will be terminated and the creditor can take the asset.
Unsecured creditors must have filed their claims. You must have completed a budgeting course in personal financial management in order to be eligible for a discharge.
Day 60-Day 90:
The debtor is discharged and most debts are written off.
- Any debts you forgot to list in your bankruptcy papers, unless the creditor knew of your bankruptcy.
- Child support and alimony
- Debts for personal injury or death caused by your intoxicated driving
- Student loans from government, non-government and profit-making organizations, unless it would be an undue hardship for you to repay.
- Fines and penalties imposed for violating the law such as traffic tickets and criminal restitution
- Recent income tax debts and all other tax debts. You can discharge debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are met:
- You do not have a tax lien against your property. If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect.)
- You did not try to evade paying your taxes or did not file a fraudulent return.
- The liability is for a tax return filed at least two years before you file for bankruptcy. Not a Substitute or Return.
- The tax return was due at least three years ago.
- The taxes were assessed and you received notice of this from the IRS at least 240 days (8 months) before you filed for bankruptcy.
If you filed for Chapter 7 bankruptcy, the above debts will still remain after your bankruptcy is completed. If you filed for Chapter 13, the debts will be included in your plan and you will be repaying them along with your other debts. If you do not pay them in full during your Chapter 13 plan, you will still have a remaining balance at the end of your case.
Your creditors may contest your request to discharge the following debts in Chapter 7 bankruptcy. These debts may be discharged in a Chapter 13, you can include them in your plan and at the end of your case the balance is wiped out.
- Debts you incurred on the basis of fraud which includes lying on a credit application, making purchases on credit of $500 or more for luxury goods or services made within 90 days of filing, loans or cash advances of $750 or more taken within 70 days of filing.
- Debts that resulted from willful or malicious injury to another person or property.
- Debts from embezzlement, larceny or breach of trust.
- Debts you owe under a divorce decree or settlement unless after a bankruptcy you would still not be able to afford to pay them or having them discharged is more beneficial to you than the detriment of having your ex-spouse pay them.
Pre Bankruptcy education certificates cost $25.00. It costs about $200 to file Chapter 7 and the attorney fees will run about $800 to $1,200. Post filing education costs are in the range of $100 to $250. You can usually get a free consultation and also keep fees at a minimum by being well organized, thus saving your attorney time from having to sort through your documents. You can also save money by not requiring the lawyer to attend the meeting of creditors with you. Check with your attorney on this, however, because in some states, attorneys must attend the 341 meeting with you otherwise it is deemed the attorney did not represent the debtor at all. It is expected that bankruptcy attorney fees will rise because of changing legislation involving bankruptcy. There is more work for the lawyer to perform and there is also a greater legal liability imposed on the lawyer which may result in his legal insurance rising.
To prepare for pre-bankruptcy counseling and ensure it is most thorough and efficient for your needs please gather the following:
- Copies of most recent household pay stubs
- Copies of most recent credit card and debt statements including mortgages, student loans, etc.
- Complete this form