What
is Bankruptcy?
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, sometimes called a straight
bankruptcy is a liquidation proceeding. The debtor turns over
all non-exempt property to the bankruptcy trustee who then converts
it to cash for distribution to the creditors. The debtor receives
a discharge of all dischargeable debts usually within four months.
In the vast majority of cases the debtor has no assets that he
would lose so Chapter 7 will give that person a relatively quick
"fresh start".
One of the main purposes of Bankruptcy Law is to
give a person, who is hopelessly burdened with debt, a fresh start
by wiping out his or her debts.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is also known as a reorganization
bankruptcy. Chapter13 bankruptcy is filed by individuals who want
to pay off their debts over a period of three to five years. This
type of bankruptcy appeals to individuals who have non-exempt
property that they want to keep. It is also only an option for
individuals who have predictable income and whose income is sufficient
to pay their reasonable expenses with some amount left over to
pay off their debts. (State laws vary)
New Bankruptcy Law that took effect
on October 17, 2005: The major intent of bankruptcy reform
is to require people, who can afford to make some payments towards
their debt, to make these payments, while still affording them
the right to have the rest of their debt erased. These
people MUST file Chapter 13.
Bankruptcy Q&A dealing
with Chapter 7
Q: I am a co-signer for a debt, how does bankruptcy
affect my obligation?
A: If the debt is a dischargeable
debt then you will not have to pay it. However, the cosigner will
become primarily responsible for the debt. Be sure to list the
co-signer as a creditor in your schedules as they have a contingent
claim against you.
Back to the Top
Q: Can I keep my house after bankruptcy?
A: Depending upon which exemption
scheme is selected and your circumstances, you may exempt up to
$100,000 in equity. When calculating your equity you should use
a value that is based upon a forced liquidation as opposed to
the best selling conditions to arrive at a value for your home.
Once you know the value, subtract the amount owed plus selling
and transfer costs from the value to calculate the equity. In
the depressed California market, liquidated properties are often
valued less than what we like to think the property is worth.
Back to the Top
Q: Can I keep my credit cards after bankruptcy?
A: Under some circumstances you
may keep your credit cards. There are many factors which must
be considered. Some of those include the credit card balance at
the time of the bankruptcy, what the credit card company is willing
to do and your ability to pay the present and future credit card
debt.
Back to the Top
Q: Will I lose my job?
A: No. Bankruptcy laws prohibits
discrimination based upon a debtor filing for protection under
the bankruptcy laws.
Back to the Top
Q: Can I go to jail if I file bankruptcy?
A: No. There are no debtor's prisons
in the United States.
Back to the Top
Q: Will my employer find out about my bankruptcy?
A: Under normal circumstances,
unless your employer is a creditor, your employer will not know.
Back to the Top
Q: Will bankruptcy stop a wage attachment?
A: Yes.
Back to the Top
Q: Will bankruptcy stop a judgment?
A: Yes. Most civil judgments are
stopped by bankruptcy.
Back to the Top
Q: Will a bankruptcy remove a lien?
A: Under some circumstances once
the bankruptcy proceedings have started, special motion can be
filed to remove certain liens. It will take a bankruptcy court
order to remove them. This is a complicated area of the bankruptcy
law and an attorney should be consulted.
Back to the Top
Q: Will bankruptcy stop an eviction action?
A: Perhaps. However, this will
only delay the inevitable. The owner is entitled to possession
of his property and at best you will be able to remain in the
property until you have received your discharge from bankruptcy
or the landlord obtains an order from the bankruptcy court. I
must caution you that if the only reason you filed the bankruptcy
is to stop an eviction then this might be considered an abuse
of Chapter 7. If the bankruptcy court finds that this is true
then the court can immediately dismiss the bankruptcy and impose
other legal and monetary sanctions on you.
Back to the Top
Q: Will bankruptcy stop a foreclosure?
A: Yes. However, a home is an asset
usually secured by a deed of trust. The mortgage company is entitled
apply to the court for relief from the automatic stay, the order
preventing creditor action by virtue of the bankruptcy. Depending
upon several factors, you may be able to prolong a foreclosure
until you have received your discharge from bankruptcy. Usually,
to keep a home that is in foreclosure you will have to make a
deal with the note holder.
Back to the Top
Q: Are there any debts that
I can't wipe out in bankruptcy?
A: Yes, there are certain debts
that are NOT dischargeable in bankruptcy. Generally speaking,
the following debts will not be discharged: Taxes; Spousal and
Child Support; Debts arising out of willful misconduct and or
malicious misconduct by the debtor; liability for injury or death
from driving while intoxicated; non dischargeable debts from a
prior bankruptcy; student loans and criminal fines, penalties
and forfeitures. Those debts which are secured will be discharged,
however, expect the creditor to take the necessary legal steps
to take back the property. In most cases if the debtor's equity
interest in the property is exempt, the debtor may retain the
property by redemption or reaffirmation.
Back to the Top
Disclaimer: This information
deals with Chapter 7 consumer bankruptcy. Each state has its own
bankruptcy laws, so you need to check with your state for details.
Information dealing with Chapter 13 bankruptcy and consumer debt
restructuring is not discussed in the above FAQs. The information
contained in the following FAQs is provided for general information
purposes only and is not intended to be a legal opinion nor legal
advice nor is it intended to be a complete discussion of all the
issues related to the area of Chapter 7 consumer bankruptcy. Every
individual's factual situation is different and you should seek
independent legal advice regarding specific information. |
