Bankruptcy Questions / Bankrptcy FAQs
This Bankruptcy questions and answers /Bankruptcy FAQ section is designed to help our readers with the different scenarios that can happen when you apply for bankruptcy. Ensure that filing for bankruptcy is your LAST resort. It's by no means a pleasant process, so avoid it if you can. For those who wish to proceed you can Click Here To Obtain All The Bankruptcy Forms You Will Require
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What is a bankruptcy discharge?
Under the federal bankruptcy statute, a discharge releases you (AKA debtor) from personal liability for certain specified types of debts. In other words, you are no longer required to pay any debts that are discharged.
The discharge operates as a permanent order directing your creditors to refrain from taking any form of collection action on discharged debts, including legal action and communications with you such as telephone calls, letters and personal contacts.
Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. In other words, if you car is still under financing, the lender can repossess the vehicle.
When does the bankruptcy discharge occur?
The timing of the discharge varies, depending on the chapter under which the case is filed. In a chapter 7 (liquidation) case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse (60 days following the first date set for the 341 meeting).
Typically, the discharge occurs about four months after the date you file the petition with the clerk of the bankruptcy court. In chapter 11 (reorganization) cases, the discharge occurs upon confirmation of a chapter 11 plan.
In cases under chapter 12 (adjustment of debts of a family farmer) and chapter 13 (adjustment of debts of an individual with regular income), the court grants the discharge as soon as practicable after the debtor completes all payments under the plan. Since a chapter 12 or chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing.
Can the bankruptcy discharge be revoked?
A discharge can be revoked under certain circumstances. For instance, a trustee, creditor, or the United States trustee may request that the court revoke the debtor’s discharge in a chapter 7 case based on:
1) allegations that the debtor obtained the discharge fraudulently;
2) the debtor failed to disclose the fact that he or she acquired or became entitled to acquire property that would constitute property of the bankruptcy estate or;
3) the debtor committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code.
Typically, a request to revoke the debtor’s discharge must be filed within one year after the granting of the discharge or, in some cases, before the date that the case is closed. It is up to the court to determine whether such allegations are true and, if so, to revoke the discharge.
In a chapter 13 case, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of confirmation or discharge.
Are all debts discharged?
Not all debts are discharged!
Section 523(a) of the Code specifically excepts various categories of debts from the discharge granted to individual debtors.
Therefore, the debtor must still repay those debts after bankruptcy. Congress has determined that these types of debts are not dischargeable for public policy reasons (based either on the nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as driving under the influence of alcohol or drugs or criminal activity).
There are 18 categories of debt excepted from discharge under chapters 7, 11, and 12. The following are the most common . . .
- Alimony;
- Child maintenance and support obligations;
- Certain taxes;
- Debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit;
- Debts for willful and malicious injury by the debtor to another entity or to the property of another entity;
- Debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances; and
- Debts for criminal restitution orders under title 18, United States Code.
Can a debtor receive a second discharge in a later chapter 7 case?
A discharge will be denied in a later chapter 7 case if the debtor has been granted a discharge under chapter 7 or chapter 11 in a case filed within six years before the second petition is filed. The debtor will also be denied a chapter 7 discharge if he or she previously was granted a discharge in a chapter 12 or chapter 13 case filed within six years before the date of the filing of the second case unless:
(1) all the “allowed unsecured” claims in the earlier case were paid in full, or
(2) payments under the plan in the earlier case totaled at least 70 percent of the allowed unsecured claims and the debtor’s plan was proposed in good faith and the payments represented the debtor’s best effort.
What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?
If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated.
The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.
Can the bankruptcy discharge be revoked?
A discharge can be revoked under certain circumstances. For instance, a trustee, creditor, or the United States trustee may request that the court revoke the debtor’s discharge in a chapter 7 case based on:
1) allegations that the debtor obtained the discharge fraudulently;
2) the debtor failed to disclose the fact that he or she acquired or became entitled to acquire property that would constitute property of the bankruptcy estate or;
3) the debtor committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code.
Typically, a request to revoke the debtor’s discharge must be filed within one year after the granting of the discharge or, in some cases, before the date that the case is closed. It is up to the court to determine whether such allegations are true and, if so, to revoke the discharge.
In a chapter 13 case, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of confirmation or discharge.
Does the debtor have the right to a discharge or can creditors object to the discharge?
In chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to the debtor’s discharge may be filed by a creditor, by the trustee in the case, or by the United States trustee. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge.
A creditor who desires to object to the debtor’s discharge must do so by filing a complaint in the bankruptcy court before the deadline set out in the notice. Filing of a complaint starts a lawsuit referred to in bankruptcy as an “adversary proceeding”.
A chapter 7 discharge may be denied for any of the reasons described in section 727(a) of the Bankruptcy Code, including the transfer or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets; violation of a court order; or an earlier discharge in a chapter 7 or 11 case commenced within six years before the date the petition was filed.
If the issue of the debtor’s right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.
In chapter 12 and chapter 13 cases, the debtor is entitled to a discharge upon completion of all payments under the plan. The Bankruptcy Code does not provide grounds for objecting to the discharge of a chapter 12 or chapter 13 debtor.
Creditors can object to confirmation of the repayment plan, but cannot object to the discharge if the debtor has completed making plan payments.
May the debtor pay a discharged debt after the bankruptcy case has been concluded?
A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family member or because it represents an obligation to an individual for whom the debtor’s reputation is important, such as a family doctor.
What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?
If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated.
The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.
Can an employer terminate a debtor’s employment solely because the person was a debtor or failed to repay a discharged debt?
The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case.
The law prohibits the following forms of governmental discrimination:
1) terminating an employee;
2) discriminating with respect to hiring;
3) or denying, revoking, suspending, or declining renew a license, franchise, or similar privilege.
A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.
Which bankruptcy chapter is the least expensive?
Chapter 7 is the least expensive because you do not have to pay off the debts. The next least expensive is Chapter 13 where you repay about 10 cents on the dollar, followed by Chapter 11.
Can I pick and choose which assets to put into a personal bankruptcy?
No. Every asset you own must be included in the filing. After filing you may choose to exempt some of your assets.
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General Bankruptcy FAQs - So I exempted my vehicle, what happens to it?
You didn't actually exempt the vehicle (or any asset) you really only exempted the equity (if any) in the asset . So, if you have a loan for $17,000 on a vehicle worth $20,000 then you exempt $3,000. However this does not mean you get to keep the car free. You only keep the vehicle if you make payments on it.
On the other hand, if the situation was reversed and you owed $20,000 on a vehicle worth only $17,000 then you could choose to simply give the vehicle back and owe nothing. One of the advantages to filing bankruptcy.
How long until my credit gets back to the point where I might hope to get a regular credit card or mortgage?
Rebuilding credit depends on how aggressively you try to get back on track, but don't figure less than 1-3 years. Remember, you can always get a secured credit card or a mortgage with a low loan to value (LTV) and high interest rate, sometimes even still in the middle of a bankruptcy.
How would I know if Chapter 7 is right for my situation?
If you have very few assets with no property and your assets can be exempted then Chapter 7 may be right for you as long as you have no other obligations such as court ordered alimony, child support payments, criminal restitution, non-dischargeable taxes, or student loans. (list of non-dischargeable items) Many national creditors prefer that you file Chapter 7 if they cannot recover at least 50 cents on the dollar.
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Can I pick and choose which assets to put into a personal bankruptcy?
No. Every asset you own must be included in the filing. After filing you may choose to exempt some of your assets.
What exactly can I exempt?
It depends on which state you live in. Most states allow the Federal exemptions but also have state exemptions that may be more favorable. See this list of Bankruptcy Exemptions - Federal and State
Do I have to appear before a bankruptcy judge?
No, you will meet with a trustee and your creditors at a meeting called 341
What is the trustee's job?
Find assets with equity, liquidate them and then pay off the secured creditors. If any money is left then they also pay unsecured creditors based on priority.
What are the reasons a judge would allow creditors to take my home after I've filed bankruptcy?
You filed a chapter 7.
You fail to file a reorganization plan or other required documents on time
You default on your scheduled Chapter 13 or Chapter 11 payments.
Your income is insufficient to execute a reorganization plan within the court's guidelines.
The asset in question will not be needed to reorganize.
The value of the asset is rapidly eroding.Can I change from a Chapter 13 to a Chapter 7 or vice versa later?
Yes, it's called "motion to convert" and can be done after you've filed for either chapter, be advised that the trustee can also request a conversion!
For instance, if your chapter 13 fails, either you or the creditor, may request a conversion to chapter 7. Likewise if the trustee thinks money might be available for unsecured creditors they may make a motion to convert your chapter 7 to a chapter 13.
Can I keep my house, cars or pets?
After filing you can exempt certain items such as a house or pedigree dog. However, in order to keep these items you'll need to stay current on payments such as a mortgage or car payment.
Lots of people are filing for Bankruptcy, why shouldn't I?
Bankruptcy is not something that should be entered into just for the heck of it. Very often there are intelligent alternatives to bankruptcy that may produce a far better result than going into bankruptcy. Bankruptcy also goes on your credit records, and may make it difficult to obtain new credit for years. Before anyone files for bankruptcy he or she should consult with a bankruptcy lawyer. There are critically important issues as to timing and disclosure that you had better address before, not after, you file for bankruptcy.
What if I committed fraud, would my debts still be discharged in bankruptcy?
No! The Bankruptcy Code has long prohibited debtors from discharging liabilities incurred on account of their fraud, carrying forth a basic policy of affording relief only to an "honest but unfortunate debtor." Congress did not favor giving perpetrators of fraud a fresh start (by allowing them to wipe out their debts in bankruptcy) over the interest in protecting victims of fraud when it wrote the Bankruptcy Laws.
Accordingly, Section 523(a)(2)(A) of the Bankruptcy Code excepts from discharge in bankruptcy "any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud." 11 U.S.C. § 523(a)(2)(A).
Does my spouse and I have to file jointly?
No! The decision to file individually or together depends on your situation. For instance . . .
If only one partner owns all or most of the debt then only that person should file;
If both partners own the debt, and want to file a Chapter 7 then both should file;
If you're trying to stop a foreclosure, only one person, on the title to the home, need file a Chapter 13.If only my spouse files, what am I liable for and what happens to my credit?
As long as there was no joint debt, your credit will not be affected. However, any future join credit purchases will depend upon the member with the worst credit history. On the other hand, if there was joint debt and only one member filed, then the member who did not file will be help responsible for the entire debt.
I have statutory penalties and punitive damages for fraud, can they be discharged in bankruptcy?
No. It is not only the actual value of the "money, property, services, or . . . credit" the debtor obtained through fraud that is non-dischargeable in bankruptcy, but also treble "punitive" damages and attorneys fees and costs related to the fraud.
This was made clear in a March 25, 1998 decision of the Supreme Court of the United States in Cohen v. de la Cruz. The case involved a landlord who had overcharged his tenants. The trial court found that the landlord had committed "actual fraud" within the meaning of the Bankruptcy Act and that his conduct amounted to an "unconscionable commercial practice" under New Jersey’s Consumer Fraud Act. As a result, the court awarded the tenants treble damages plus reasonable attorney's fees and costs.
Can the creditor ask to have me reaffirm the debt?
Yes, this means that the creditor is asking that the debtor pay the debt anyway, even after it has been discharged. A debtor may be willing to do this if there is a co-signer or guarantor of the debt (such as a family member, friend or employer) that the debtor does not wish to leave saddled with the debt.
Also, a debtor may want to reaffirm a debt in order to avoid having a secured creditor take the collateral provided for the debt. A creditor may also ask a debtor to reaffirm the debt before he (the creditor) will agree to do business with the debtor again.
What is Community Property?
There are nine community property states - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In addition, Puerto Rico is a community property jurisdiction.
These states generally regard as community property all property that has been acquired during the marriage, other than a gift or inheritance. Even if one spouse earns all the money to acquire the property, all the property acquired is considered to be community property. While there are a number of differences in each state, all states have special laws that operate on the theory that both spouses contribute equally to the marriage; thus all property acquired during the marriage is the result of the combined efforts of both spouses. In community property jurisdictions, spouses equally own all community property (fifty percent owned by the husband and fifty percent owned by the wife).
What is "Equitable Distribution"?
Most states employ "equitable distribution" in dividing marital (community) property as a result of the dissolution of marriage (divorce). Instead of a strict fifty-fifty split (in which each spouse receives exactly one-half of the marital or separate property), equitable distribution looks at the financial situation that each spouse will be in after the termination of the marriage. While equitable distribution is more flexible, it is harder to predict the actual outcome, since the various factors are subjectively weighed. Factors considered in equitable distribution include:
Earning power of the spouses (one might be much greater than the other)
Separate property of the spouses (one might be greater in value than the other)
One spouse having done all the work to acquire the property
The value that one spouse contributed as the home-maker for the family
Economic fault of one spouse in wasting and dissipating marital property
Duration of the marriage
Age and relative health of the spouses
The responsibility for providing for children of the marriage
Spousal abuse or marital infidelity (to penalize the offending spouse)
What happens to my Federal Tax Debts?
It depends whether you file a Chapter 7 or a Chapter 13. A Chapter 7 debtor can wipe out federal income taxes if all the following are met:
the IRS had not filed a prior tax lien on the assets you own (if they have, the lien survives bankruptcy, which means that the government may still seize property to collect the discharged tax debts);
you didn't file fraudulently or try to evade paying your taxes;
your liability is for a tax return filed at least two years prior to the bankruptcy;
the tax return was due more than three years ago; and
tax deficiencies that were assessed on prior returns were assessed at least 240 days prior to the filing of the bankruptcy.
In a Chapter 13 filing, you'll pay the IRS as part of your repayment plan.
Can the creditor ask to have me reaffirm the debt?
Yes, this means that the creditor is asking that the debtor pay the debt anyway, even after it has been discharged. A debtor may be willing to do this if there is a co-signer or guarantor of the debt (such as a family member, friend or employer) that the debtor does not wish to leave saddled with the debt.
Also, a debtor may want to reaffirm a debt in order to avoid having a secured creditor take the collateral provided for the debt. A creditor may also ask a debtor to reaffirm the debt before he (the creditor) will agree to do business with the debtor again.
