Confused about the bankruptcy process? Unsure how it fits into your needs? Heard a rumor about what it involves, and wonder if it’s true? Bankruptcy can be a confusing, often intimidating process with many terms, procedures or qualifications that may not be readily apparent to the average person. Lets take a look at some of the most common questions our clients have asked in regards to bankruptcy.
What is Bankruptcy?
Bankruptcy is a legal process administered by the federal government. It provides debt relief to honest debtors in serious financial straits, usually from a combination of factors, the most common of which are:
- Health Problems
- Credit Card Debt
Do I Qualify for Bankruptcy?
In order to qualify for Chapter 7 bankruptcy, you must meet the income criteria (called a means test.) If you earn too much, have a mortgage arrears, or need to protect non-exempt assets, you will need to file for Chapter 13 relief instead.
What is the Difference Between Chapter 7, 11, and 13?
In Chapter 7 bankruptcy, unsecured debts are discharged entirely, giving you a financial fresh start. In Chapter 13, you will be paying off a portion of your debt over the next three to five years. For more information, check out our article on the differences between Chapter 7 and Chapter 13. Finally, Chapter 11 is a type of debt relief for those individuals or businesses that have a very high level of income.
What Kinds of Debts will be Covered?
Unsecured debts such as credit cards and medical bills can be discharged, as well as some judgement related debts or back taxes. You can not discharge the following debts
- Secured debt (loans secured by collateral)
- Student Loans
- Child Support or Alimony
- Recent Taxes
- Criminal Fines
- Personal Injury judgements
Do I have to Give Up Everything I Own?
Certainly not! Under the property exemptions of bankruptcy, most of our clients do not lose any assets.In most cases, you will be able to keep your car, your home, your retirement savings, personal property and even some valuables. If you have assets that are not exempt, you may have to wait to file chapter 7, file for chapter 13 reorganization, or explore alternatives to bankruptcy.
Can Creditors still come after me?
On the day that your petition is filed with the U.S. Bankruptcy court, all creditors are subject to an automatic stay. All legal actions and debt collection must he halted, including foreclosure, repossession, wage garnishments and lawsuits. Creditors can not continue to harass you or even contact you about your debts.
Will My Spouse also have to file for bankruptcy?
This will depend on if your debts are jointly held. If so, it may be necessary for you to file together. If One individual holds the majority of the debt, they may file separately in order to protect the assets or credit of the other spouse.
Can I save my home?
Filing for bankruptcy will stop foreclosure proceedings, at least temporarily. To discharge other debts on Chapter 7, you must be current on your mortgage. If you are behind on house payments, mortgage arrears can be rolled into a Chapter 13 repayment plan and repaid over time.
Will My Credit Ever Recover?
Absolutely, bankruptcy is actually an opportunity to rebuild good credit if you live within your means and pay your bills on time.