How fast does a bankruptcy filing stop a creditor’s lawsuit, garnishment, and phone calls?
Very fast. Filing bankruptcy will stop just about all collection actions immediately. So, if filed in time, bankruptcy will stop a judgment from being entered, or a garnishment on a judgment that’s already been entered. And it will stop all the related phone calls and collection letters and emails.
Will bankruptcy stop foreclosure of my home and help me keep it?
Yes, filing bankruptcy stops the foreclosure proceeding on your home, whether it is a foreclosure lawsuit or a “non-judicial” one. In virtually all cases, the “automatic stay” goes into effect the moment a bankruptcy is filed, stopping the foreclosure process in its tracks. Then whether and how you can keep your home depends on whether you filed a Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts. They provide different tools to make keeping your home more affordable.
Will bankruptcy prevent my car from being repossessed and then help me keep it?
Bankruptcy can stop the repossession of your vehicle, potentially even minutes before or even while it is happening. But it’s much better not to wait until the last minute. Chapter 7 and Chapter 13 each give you different tools for helping you keep your vehicle. Which is more effective depends on whether you are behind on payments, how long you’ve had the vehicle, its value compared to the amount you owe, and other factors.
Can I rebuild my credit after filing for bankruptcy?
You can usually begin to reestablish your credit right away after your bankruptcy. The discharge (write-off) of all or most of your debts can actually help your credit. If your credit record is important to you, there are many ways you can be proactive about improving your credit score after bankruptcy. In most situations, you’ll go from a situation of ever worsening credit to one of steadily improving credit.
I only want to file bankruptcy on certain creditors, but not on others. Can I do that?
Generally not. You are required by law to list on your bankruptcy schedules everybody to whom you legally owe a debt. Plus it’s sometimes prudent to also include those who may be creditors but you aren’t sure, in order to cut off their possible rights to pursue you later. Intentionally failing to list a creditor is a serious matter. So if you have concerns about this, be sure to tell your attorney, who will very likely have a sensible solution to your concerns.
Do I have to go to court?
Almost never. It is very unlikely that you would ever see the inside of a bankruptcy courtroom. However, everybody who files any kind of bankruptcy must attend a so-called “first meeting of creditors” about a month after your bankruptcy is filed. It’s usually a short—about 10 minute—routine event that you go to with your attorney. It’s not held at court. But it is absolutely critical that you go to this meeting because your case will be thrown out if you don’t.
Are there alternatives to bankruptcy?
There are three primary alternatives to filing bankruptcy: debt consolidation, settlement of debt, and being “judgment proof.” 1) Debt consolidation is seldom a practical option because of bad credit, unless maybe if you get a co-signer. 2) Debt settlement is tough to pull off unless you have access to enough cash to make realistic lump-sum offers to your creditors. 3) Being “judgment-proof” does not mean that a creditor couldn’t sue and get a judgment against you, but rather that you don’t have any income or assets that a creditor could grab to satisfy a judgment. With all three of these, the big question is whether they will help you long term or will instead just postpone the inevitable need for bankruptcy relief.
What happens to co-signers of debt in my bankruptcy?
The Chapter 7 bankruptcy “discharge” (legal write-off) of your debts does not discharge a co-signer’s obligation. You have the option of paying that debt (which you should be better able to do after discharging your other debts) or instead of discharging whatever obligation you have to the co-signer. If neither of those options is acceptable, you can file a Chapter 13 and use its special “co-debtor stay.” That can legally prevent a creditor from collecting from the co-signer while you are also protected while you repay the debt through the Chapter 13 plan at the pace your budget allows.
Can bankruptcy help if I’ve fallen behind on my child or spousal support payments or income taxes?
It likely can. Child and spousal support can’t be discharged, but income taxes can be if you meet certain conditions. If a support or tax debt can’t be discharged, Chapter 7 “straight bankruptcy” will help only by discharging (writing off) other debts so that you can better afford to pay the support or tax. Chapter 13 “adjustment of debts” provides much more help by giving your 3 to 5 years to pay what you have to pay, throughout which time you are protected from these otherwise very aggressive creditors.
Since Chapter 7 “straight bankruptcy” is simpler than a Chapter 13 payment plan, do I honestly need an attorney?
A Chapter 7 case is not always simpler than a Chapter 13 one. The laws are very technical. They include both federal and state laws and rules, federal and state court opinions. So even a seemingly “easy” bankruptcy case is filled with countless potential traps. We constantly hear from and personally witness debtors who get themselves into serious problems by trying to file without professional representation. Bankruptcy has long-term financial and legal consequences. So it’s only sensible to have the guidance of an experienced bankruptcy attorney.
Will I be able to keep everything I own if I file for Chapter 7 bankruptcy?
Yes, usually. Most people do because everything they own is protected by property “exemptions.” Federal and Oregon laws allow you to keep certain amounts of different categories of assets. But it not that unusual to own something that is not “exempt.” So it really is important to talk with a lawyer both to find out if you have anything that’s not protected, and then, if so, to find out how you could still likely protect it.
Can I sell or otherwise dispose of some of my possessions before I file bankruptcy?
That’s quite dangerous. Generally getting rid of assets during a period of time before bankruptcy is considered highly suspect—a possible “fraudulent conveyance.” It could be considered hiding assets from your creditors, which is not allowed. There is a significant risk that your sale or disposal could be subsequently undone—the person you sold or gave your possession to could be ordered to give it to your Chapter 7 trustee. The laws do NOT follow what seems like common sense. There may well be valid ways to sell or otherwise dispose of an asset. But both the sale/disposal and what you do with any proceeds must be done with detailed legal guidance. Otherwise there’s a good chance you’ll have a major problem on your hands.
Can I pay a special debt—like a family loan—before filing to keep that out of the bankruptcy?
This is also dangerous—your honorable intentions could easily seriously backfire. To favor such a friendly creditor over others during a certain period of time before filing bankruptcy could be considered a “preference” payment. The Chapter 7 trustee may be able to force your family member to pay whatever you paid “back” to the trustee, who would then pay it out to all your creditors (after pocketing some of it for trustee fees). Not only might that be very embarrassing for you, if you continue to feel obligated to that family member you may end up paying that person a second time on the same debt.
If I have filed a bankruptcy before but have now have serious financial problems again, can I file again?
You may be able to file another bankruptcy case sooner than you think. How long you have to wait depends on whether the case you filed earlier was a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts,” and which of these you are filing now. Sometimes there’s no delay at all, for example if you didn’t get a “discharge” (a write-off of your debts) in your prior case.
When filing bankruptcy what do I need to disclose, why do I need to, and who will see it?
A very high percentage of people who file under Chapter 7 have a successful case—at least those who use a lawyer to do so. In most cases you permanently discharge all or most of your debts within about 3 months of filing, and don’t lose any assets. But to get those kinds of major legal benefits you do have to provide a lot of financial information—about your debts, your assets, income and expenses, and various other information. Most people who need these bankruptcy benefits qualify for them, but the bankruptcy system has to determine whether you really do qualify. Your bankruptcy case file is publically accessible. But practically speaking, in most cases nobody—other than maybe some of your creditors—cares enough to look at your file.
What is the "Means Test" in qualifying to file a Chapter 7 case?
The “means test” is supposed to determine if you have the “means” to pay a meaningful amount of money to your creditors over time. If you don’t pass the “means test” you will likely have to file a Chapter 13 case instead of a Chapter 7 one. Then you’d have to pay whatever you could afford to pay to your creditors over a 3-to-5-year period. But most people who need a Chapter 7 case can pass the “means test” easily. Most do so simply by having low enough income—no more than the “median income” amount for your state and family. And even if your income is somewhat higher than that, your bankruptcy lawyer may well be able to get you to pass the “means” test through other legally appropriate ways.
Does my spouse have to file with me?
You and your spouse are legally distinct persons and can each make your own decision about what’s in your best interest. As long as you are legally married you are allowed to file jointly, but you’re not legally obligated to. The key question is whether a joint filing is the best for both of you. It often is, especially if you have mostly jointly owned assets and mostly jointly owed debts. However, the more legally separate your assets and debts, the more likely that only one of you needs to file bankruptcy and/or that you each need to pursue different legal options.
What are the rules about accruing new debts just before filing bankruptcy?
It’s generally considered fraudulent to incur a new debt or to add to a debt when you don’t intend to pay it. That is, it’s not appropriate to incur a debt if at that time you intended to discharge the debt in bankruptcy. Because it’s difficult for a creditor to prove a debtor’s bad intentions, the law provides for “presumptions of fraud” that kick in under certain circumstances. Those circumstances usually involve using a credit card for purchases or cash advances totaling more than certain dollar amounts, within certain time periods before filing bankruptcy. You should avoid purchases and cash advances that trigger a “presumption of fraud” or else the debt may be harder to discharge (write off).
How does Chapter 13 let me to keep possessions that I would have to surrender under Chapter 7?
This is one of the important benefits of Chapter 13 “adjustment of debts.” Essentially, instead of surrendering to the Chapter 7 trustee your asset that is not protected by a property “exemption,” in a Chapter 13 case you pay over the course of your 3-to-5-year case a certain amount of money to be able to keep that asset. The amount you usually pay is the amount that the Chapter 7 trustee would have received in net proceeds when he or she would have sold that asset. However, protecting an asset this way may really not cost you anything extra in your Chapter 13 case. You may already be obligated to pay that much based on your budget. Or that money may just be part of what you would have had to pay anyway, such as a recent income tax debt or child/spousal support arrearage.
What determines how long my Chapter 13 case will take to finish?
There are multiple factors. First, your income determines whether the minimum length of your case is 3 years or instead 5. Second, an otherwise 3-year plan is allowed to go as long as 5 years in order to pay certain debts that have to be paid during the course of the case. Those debts may be secured debts—a vehicle loan or to catch up on a mortgage, for example—or “priority” debts—recent income tax debt or unpaid child/spousal support payments. Third, an otherwise 3-year plan is usually allowed to go as long as 5 years simply stretch out the Chapter 13 payments to reduce them to make them affordable. Fourth, plan payments may be adjusted months or even years after filing if there are changed circumstances, resulting in a longer or shorter case. Finally, under any circumstances cases are not allowed to take longer than 5 years.
What is a “Chapter 13 plan,” and what determines when certain creditors get paid?
The “plan” summarizes which creditors you are paying, how much, and when during the case. You and your attorney submit a proposed plan, and then creditors and the Chapter 13 trustee have the opportunity to object to its terms but only on limited grounds. Then the bankruptcy judge reviews, sometimes adjusts, and then approves the plan. When creditors get paid under the plan is determined by some rather complicated laws. Secured creditors—those with a lien on something you own—are generally paid first because of extra rights they have in your property as a result of their lien. “Priority” debts—those treated specially by the law for various reasons—are generally paid next because they have to be paid in full during the course of the plan. “General unsecured” debts (those that aren’t “priority”) are paid last, to the extent they are paid at all.
I’ve heard that under Chapter 13 people pay a portion of their debts. What determines who gets paid and how much?
Certain debts have to be paid in full. You pay most secured debt if you want to keep the collateral. Also “priority debts”—in consumer cases mostly recent income taxes and child/spousal arrearage payments—must be paid in full before the completion of your case. (Note that you also have to keep current on income taxes and support payments going forward.) The rest of the debts—“general unsecured” ones—often only have to be paid through your plan to the extent you have money available to pay them during the course of the plan. Often these last debts are paid little or sometimes even nothing, with any remaining balance permanently discharged at the end of the case. Other factors can also come into play, such as whether you are protecting any non-exempt assets, shielding a co-signer, and a myriad of other possible complications.
If I have to pay part of my debts in a Chapter 13 case, debts I would not have to pay in a Chapter 7 case, why would filing Chapter 13 make any sense?
Chapter 13 comes with many huge potential advantages. If one or more of those advantages apply to you, they could easily justify any disadvantage. For example, if you qualify for a “cramdown” of your vehicle loan or a “stripping” of a 2nd mortgage on your home, those could save you thousands or even tens of thousands of dollars. Besides, often in a Chapter 13 case you pay comparatively little many or even most of your creditors, and sometimes nothing at all. Whether or not filing Chapter 13 makes sense involves weighing all the different ways it would benefit you against whatever ways it may cost you.
My marriage is getting shaky. Should I still file Chapter 13 with my spouse, or is there some other option?
If Chapter 13 seems to be your best option for what you are trying to accomplish, the next question is whether to file it by yourself or instead along with your spouse. If your marriage is not stable, and you can get the needed benefits by filing alone, that may be the way to go. Chapter 13 cases usually last 3 to 5 years, and it’s seldom smart to file one jointly with your spouse if the marriage is going to end before the case will. There’s a procedure for “severing” the case into two separate cases if there’s a divorce, but it can be problematic and expensive. An ongoing Chapter 13 case plus divorce is a bad mix. Be honest with your lawyer about the state of your marriage so that you can get practical advice about your options.
Does Chapter 13 discharge some debts that Chapter 7 does not?
Yes, but only very few debts. Under Chapter 13 debtors used to be able to discharge a number of types of debts that no longer can be. For example, you could discharge student loans and fraudulent debts through Chapter 13. But over the last few decades Congress has reduced the types of debts that could be discharged only under Chapter 13. The main one that remains is NON-SUPPORT divorce debts. These are debts arising from a divorce decree not involving child or spousal support but rather the “division of marital property.” These are usually obligations to pay an ex-spouse to compensate for you receiving more of the marital property, or obligations to pay a marital debt. So if you owe any non-support divorce debts, especially large ones, be sure to check out Chapter 13.
If my debts aren’t discharged until the end of the case, years after filing, what happens to them in the meantime?
The Chapter 13 payment plan (which is approved by the bankruptcy court a few months after you file your case) lays out which creditors will paid, how much, and when. Then during the 3 to 5 years that a plan usually lasts the creditors are legally forbidden from taking any collection action against you. The exception is if a creditor asks and receives permission from the court, such as after you don’t make the payments you agreed to make. Otherwise the creditors just have to wait as the Chapter 13 case runs its course. Then at your successful completion of the payment plan most if not all of the remaining debts are permanently discharged.